The extraordinary public health measures taken to address the COVID-19 pandemic have resulted in the biggest economic shock Australia has ever experienced. Unemployment is expected to rise to levels not seen for more than a generation, and the government has rightly taken on significant public debt to support jobs and incomes while a large proportion of the nation’s economic activity has been temporarily shut down.
As we emerge from the immediate crisis, attention is beginning to turn to how we will rebuild our economy, restore jobs and livelihoods, and pay down that debt, which has been described as a massive burden on future generations.
It is important to recognise that it is not the debt itself that poses a risk to our future: it is how we choose to respond to it.
What comes next is critical. The decisions taken in the aftermath of this crisis will have a material impact on the opportunities of our children to build good lives, and to enjoy the same, or better, standards of living than did their parents and grandparents.
There is likely to be a fierce battle waged over how we rebuild Australia’s economy. This must, and will, be a contest about what sort of society we want Australia to be.
On one side will be a push to return to the kind of economic arrangements that have exacerbated wealth and income inequality, and contributed to the crisis of climate change.
On the other is an opportunity to reset our economy to be more sustainable and equitable, and to pay down the debt without causing further damage to Australians through austerity measures.
Already, some are calling for cuts to government spending on essential services and income support, others for an increase in the rate of the Goods and Services Tax. Soon, we will likely see a push to sell off public assets.
It is imperative that Government does not choose the path of austerity in response to this crisis. Cutting spending will jeopardise the recovery and lead us down a low demand, high unemployment, low growth route.
Many countries implemented austerity measures following the GFC with the singular goal of paying down debt. The UK government cut over GBP30 billion from social spending over the following decade in the pursuit of a balanced budget.
Austerity economics has led to a decade of poor growth, low wages and rising poverty across the UK, with GDP estimated to have been suppressed by up to GBP100 billion a year as a direct result. In 2018, the United Nations found that austerity measures were “entrenching high levels of poverty and inflicting unnecessary misery in one of the richest countries in the world”.
The key to ensuring our children are not punished for our debt is to take the necessary measures to protect and build the economy in which they will live and work. They will need good, reliable jobs with decent incomes; a strong social safety net; access to affordable housing; and the opportunities provided by a world-class education.
None of these things are possible if we respond to public debt by cutting spending.
When economic activity is restored, well over a million people will be out of work. Many of those still with a job are likely to see their incomes reduced for months and even years. With high levels of household debt, consumer demand will be depressed and, despite record-low interest rates, business will be reluctant to borrow.
If government spending is cut, we will enter a self-defeating downward spiral, where spending cuts reduce aggregate demand and create greater unemployment, which in turn further reduces aggregate demand and employment, and results in reduced tax receipts.
We will need more spending, not less. Recent government spending has been called a stimulus, but it is more accurately described as welfare spending for the economy. The stimulus we need is still to come.
The good news is that it has never been cheaper for the government to borrow money to invest in the productive capacity of the economy, and to create new jobs. The yield on 10 year government bonds is currently less than 1%, while inflation is around 1.7%. This means that borrowing is essentially interest free for the government.
We the undersigned call on the Government and Opposition to work together to invest in the productive capacity of the Australian economy, by rebuilding public services and public infrastructure, and creating strong incentives for business to invest in productivity growth; and to rule out austerity measures such as spending cuts that would entrench high levels of structural unemployment, destroy many small businesses, suppress growth and plunge millions of Australians into poverty.
Emeritus Professor Jon Altman AM, The Australian National University
Professor Michelle Baddeley, University of Technology Sydney
Osmond Chiu, Research Fellow, Per Capita
Dr Julie Connolly, Research Fellow, Per Capita
Adjunct Professor Eva Cox AO, University of Technology Sydney
Emma Dawson, Executive Director, Per Capita
Associate Professor Janine Dixon, Victoria University
Dr Tim Dunlop, independent author and researcher
Dr Belinda Edwards, University of New South Wales
Dr John Falzon, Senior Fellow, Per Capita
Emeritus Professor Roy Green, University of Technology, Sydney
David Hetherington, Executive Director, Public Education Foundation
Nicki Hutley, Deloitte Access Economics
Angela Jackson, Equity Economics
Tim Kennedy, National Secretary, United Workers Union
Tania Kovac, CEO Gen Vic
Damian Kyloh, Australian Council of Trade Unions
Tim Lyons, Research Fellow, Per Capita and Former Assistant Secretary of the ACTU
Francis Markham, Centre for Aboriginal Economic Policy Research, The Australian National University
Dr David Morawetz, Founder and Director, Social Justice Fund
Michael Priddis, CEO, Faethm
Associate Professor Ben Spies-Butcher, Macquarie University
Emeritus Professor Frank Stilwell, University of Sydney
Warwick Smith, Co-founder & Economist, Castlemaine Institute and Research Fellow, Per Capita
Professor John Quiggin, Australian Laureate Fellow in Economics, University of Queensland