Coronavirus, part three: the economics of a shutdown
From Schwartz Media, I’m Ruby Jones, this is 7am.
Every day this week we’re covering a different aspect of the coronavirus crisis. Today we’re looking at the economy.
On Monday the government passed its stimulus measures through parliament, but there’s questions over whether it’ll be enough.
Hundreds of thousands of Australians have lost their jobs and businesses are closing around the country.
In this episode we speak to chief economist at The Australia Institute Richard Denniss on how we can get through the next 18 months.
This is part three... The economics of a shutdown.
Archival tape -- news reporters:
“Half a million workers could soon lose their jobs, the massive jobs shock will see the unemployment rate doubling to 10, perhaps even 12 percent.”
“The total number of unemployed Australians could skyrocket above 1 million.”
“Lines are stretching for hundreds of metres outside centrelink offices around the country amid the panic over today’s nationwide shutdown.”
“This cue started well before 8:30 and it is growing by the minute.”
Richard, the coronavirus pandemic is a public health crisis but it's also triggered an economic one. What vulnerabilities has it revealed about Australia’s economy?
Look, there's a couple of things that have made us vulnerable. One is we've told ourselves for decades that the less money we spend on the public sector, the richer we’ll all be, the happier we'll all be. We've actually defined public sector spending as inefficient, and we've defined government efficiency as government cutting spending on essential services.
Well, the queues at Centrelink offices today speak to the terrible tragedy that is 20 years of running down our country's ability to provide services to citizens.
Archival tape -- Interviewee:
“I’ve always found it easy to find work, at the moment there’s absolutely nothing around. I’m applying for everything and getting no callbacks.”
Archival tape -- Interviewee:
“Our whole year has evaporated in the space of two weeks.”
Archival tape -- Interviewee:
Person 3: “As a window cleaner, I don’t know what sort of work basically we’re going to have in the future, so just want to find out some questions, that's all.”
It's a terrible sign of just how much and how rapid the unemployment is in Australia, but I think it's also a terrible sign of how we've let essential services like Centrelink decline in quality and quantity over the years.
The government has now passed a stimulus package including increases to welfare payments and cash grants to businesses - does this package go far enough?
No. Let's be clear, the Reserve Bank was telling the government last year: “Josh Frydenberg, you need to stimulate the economy. You need to pump some cash into the economy.” And the government didn't listen.
Archival tape -- newsreader:
“The reserve bank governor Philip Lowe says the bank can only do so much to try and give the economy a kick-along…”
Scott Morrison and Josh Frydenberg last year did not act on the slowing economy that we already had well before Coronavirus showed up.
But the... you know, what we're talking about at the moment, $40 billion dollars, it's very small in the scheme of what we're going to see in the coming 12 to 18 months. To put it into perspective, public debt in Australia will probably wind up something like being 100 percent of GDP in a year or 18 months time.
We're going to see government tax revenue collapse. Company tax revenue, personal income tax revenue, GST, tax revenue; all those tax revenues are going to dry up. Government spending is going to, by necessity, go through the roof, and we're going to end this crisis with a much bigger public sector than the one we have now.
We need more doctors, we need more nurses, we need to rapidly employ a lot of people to help the doctors and nurses we've got there, and we're going to have much bigger debt than Australia's seen since World War Two.
Richard, what about the way we’ve structured our economy over the past few decades - how are decisions that were made years ago playing out now?
Well, we found out over summer that cutting spending on fire brigades was a bad idea. We're finding out right now that cutting spending on welfare is a bad idea. So in the public sector side we've run down our literal capacity to adapt to crises. And in the private sector, we've created very, very long international supply chains for nearly everything.
Right now, we're discovering that if we would need to make respirators in a hurry so that we can treat more people in intensive care, we don't really know how to do that very well. And while other countries are repurposing their car industries to make such equipment, of course we've just let our car industry walk offshore because in 2013 and 2014 the current government literally bluffed the car industry into leaving.
We've gutted our manufacturing industry, just as we've gutted our public services, and it's going to be very hard to retool and get those things to happen as quickly as people might like. No one's ever really doubted that markets are really good at doing some things. But in Australia, we haven't had a debate about which things do we think the private sector are good at and which things do we think the public sector are good at. For years, we've just been told that the private sector is more efficient and better than government, and here we sit in a system that’s unable to respond rapidly and effectively to this kind of crisis, precisely because we've cut so many jobs at CSIRO, we've underfunded our public hospitals, we've got an aged care system that we're having a royal commission into at the moment because it was already failing last year.
Such a minimalist approach, such a cruel and petty approach to the delivery of essential services has made us a vulnerable nation. And sadly, this crisis is going to expose those cracks.
We'll be back in a moment.
Richard, we’re talking about how the coronavirus outbreak will affect Australia’s economy and the scale of job losses and business shutdowns. I want to talk to you about what can be done to see us through. What are some of the specific measures the government could be taking?
The simplest and most immediate thing is for the government just to literally start employing tens of thousands of extra workers today to help out at Centrelink, to help out our already stretched health system, to help out our already stretched aged care system. We are in for months and months and months of operating essential services beyond the capacity for which they’re designed. And we need to get as much help into those systems as we can right now.
Our schools are going to close. While they're closed, what better time to recarpet them? What better time to repaint them? Every school and community group building in Australia should come out of this with solar panels on their roofs. A lot of people are going to stop maintaining or renovating their houses - let's use that renovation and maintenance workforce to fix our public and our community buildings. Governments don't just have to spend a lot of money. They need to be creative and use this period, use the idle labour, use the idle machinery to fund the bring-forward of all those important tasks. And these ideas will be common sense in six months time, but if they’re common sense in six weeks time, we won't waste that six months.
So the government needs to reassure people, vulnerable people in the community, that we are going to keep looking after them. People won't panic buy in the shops if they know that the government has got a plan to look after not just the most vulnerable, but all of us. So we need to realise that this is a radically bigger and different shaped problem than a cyclical downturn, that an interest rate cut or a couple of billion dollar cash injection will fix. We need to get not just our economy, but our community through six or 12 months of economic carnage, the likes of which no one has ever seen.
Do you think that the scale of this crisis and the kind of response that we need to get through it will fundamentally change the way that we think about the economy?
Yes, because we're starting to talk about the fact that all of the neo liberal cost-cutting and efficiency measures, that we were told that there was no choice but to make for decades, have left us poorly prepared for the crises we face. The business community that's told us for 10 years, our number one priority is to have a budget surplus, that same business community is now demanding the government spend a lot of money looking after their businesses. People who just last year were voting against spending more on the health system are now demanding that the government provide a better health system. People who just last year voted against making welfare more generous, are now demanding that the government provide them or their kids with more generous unemployment benefits.
If we can come through the other side being a more caring community, that knows that a good way to look after yourself is to actually look after your community, that would be an advantage. We shouldn't have to go through anything like this to learn simple lessons about economics, but we are going to go through this, so let's hope we do learn those simple lessons.
Richard, thank you so much for talking to me today.
And an update on the coronavirus outbreak…
The number of confirmed cases of the virus in Australia has exceeded 2,000. 133 of those cases are directly linked to the Ruby Princess cruise ship that docked in Sydney last week.
One passenger on the cruise ship has died from the virus, bringing the total number of coronavirus related deaths in Australia to 8.
The federal government is estimating an additional one million people could be unemployed as a result of the economic disruption caused by the virus.
That would nearly triple Australian’s unemployment rate, taking it to 15 percent.
The government is advising Australians seeking assistance from Centrelink to contact them by phone to avoid large lines outside Centrelink offices.
And Parliament is taking a break for five months after emergency economic stimulus legislation was passed on Monday.
The government secured the authority to spend an additional $40 billion on welfare and health initiatives without passing new laws.
Tomorrow on 7am we’ll continue our series on the coronavirus outbreak by looking at the race to develop a vaccine.
I’m Ruby Jones, this is 7am, see ya tomorrow.
With hundreds of thousands of Australians losing their jobs, the economic cost of coronavirus is becoming clear. On Monday the government passed its stimulus measures through parliament, but there’s questions over whether it will be enough. Today, chief economist at The Australia Institute Richard Denniss on how we can get through the next 18 months.
Guest: Chief economist at The Australia Institute Richard Denniss.
How Australia can avoid economic collapse in the wake of Covid-19 in The Saturday Paper
The Saturday Paper
7am is a daily show from The Monthly and The Saturday Paper. It’s produced by Ruby Schwartz, Atticus Bastow, and Michelle Macklem. Elle Marsh is our features and field producer, in a position supported by the Judith Neilson Institute for Journalism and Ideas. Brian Campeau mixes the show. Our editor is Osman Faruqi. Erik Jensen is our editor-in-chief. Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio.