As Scott Morrison contemplates returning to politics as usual, there’s something he should keep front-of-mind: governments that preside over severe recessions usually get tossed out.
Voters’ gratitude for being saved from the virus will fade, leaving them staring at that triumph’s horrendous price tag – its opportunity cost: the huge number of people still waiting to get a job back as we approach the federal election in early 2023.
It follows that Morrison’s best chance of pulling off two election miracles in succession rests in doing all in his power to get the rate of unemployment back down to the 5 per cent it was at before the virus hit.
To Morrison, returning to politics as usual means returning to what he calls “ideology” and I call governing not for all Australians but for the Liberal tribe – team Lifters – the “base” and its big business donors.
What he means by ideology is fighting for less government, lower taxes and the protection of tax breaks. Which, in turn, means shifting the balance in favour of the Lifters and against the rival Leaners tribe, aka Labor.
Liberal grandee John Howard sanctioned Morrison’s huge increase in government spending by telling him that, in a crisis, there’s no ideology. True. Any Liberal government would have done the same, as the big spending of Britain’s Conservatives and America’s Republicans suggests.
But now the lockdown is being unlocked, Morrison's being pressed by his base and big business supporters to get back to smaller government and lower taxes. He should be cutting company tax and revisiting industrial relations reform. If that ends the bipartisan co-operation from Labor and the unions, so be it.
But I’d think twice if I were Morrison. People close to him say that, at heart, he’s a pragmatist rather than an ideologue. If so, he should follow his instincts, which have served him well so far.
The case for not only delaying winding back the existing spending programs, but also spending a lot more, has much pragmatism going for it – especially if you’re hoping to be re-elected.
The decisions Morrison must make come in three parts. First is when it makes sense to start withdrawing the expensive JobKeeper wage subsidy scheme and the surprisingly generous doubling of the JobSeeker payment, which were always intended to be temporary.
The emergency and experimental JobKeeper scheme – which divides those without work into first and second class citizens and is replete with anomalies - will have to be brought to an end sometime.
By contrast, the idea that we could go on starving the unemployed on $40 a day forever was unrealistic. Now, after a recession as bad as this one, it will be a long time before voters again share the Lifters’ prejudice that anyone without a job must be a bludger.
Once most of the economy’s reopened, there will be a bounce back to some extent. But as has become the norm in recent years, the official forecasters are much more optimistic about the extent of the bounce-back than private forecasters are.
If I were Morrison, I wouldn’t be withdrawing any support to the jobless before I’d seen actual figures on the extent of the initial recovery. Withdraw the two key measures too soon and the much feared “second wave” could be economic rather than medical.
The bad news is that government spending to date has merely reduced the depth of the economy’s fall. Of itself, it’s not capable of stimulating growth in private sector demand in any positive sense.
And right now, it’s hard to think of a non-government factor that could drive the economy forward.
Consumer spending by deeply indebted, frightened households that are about to take a cut in their real wages? New investment by businesses facing weak demand for their products and much idle production capacity? Increased exports to a heavily recessed world?
So Morrison’s second pragmatic task is to come up with spending measures to actually kickstart demand in the immediate future. It wouldn’t be hard to think of sensible measures - provided the primary beneficiaries are people ineligible for membership of his Lifters tribe.
Third, this short-term pump-priming does need to be supplemented by reforms to keep the economy growing in the medium to longer term. But the place to look for ideas is the Productivity Commission’s Shifting the Dial report, not his Lifters tribe’s tired trickle-down agenda, which is rent-seeking thinly disguised by Liberal mythology about lower taxes boosting incentives.
It’s pseudo-economics, unsupported by empirical evidence. Rent-seeking is about grabbing a bigger slice of the pie, not growing it. You can get away with this when times are good, but when times are as tough as they will be, and since it doesn’t actually work, it won’t wash with the great unwashed voter.
