Otherwise, as my Centre for Independent Studies colleague Robert Carling warns: “JobKeeper becomes JobKiller because it stifles incentives and keeps resources bottled up in unproductive activities or in businesses that have no future.”
That is why the government has tapered and targeted the revamped income-support measures as recovery develops.
Second, liberate what John Maynard Keynes called the economy’s “animal spirits” – that is, the passions and competitive instincts that are essential to economic growth. Why not slash costly regulations that impede job creation? Modernise our enterprise bargaining workplace system to drive wages through productivity gains? Use the tax system to encourage entrepreneurship among younger Australians?
Third, resist the temptation to increase business or income taxation. The former will drive successful people abroad and restrict business incentive to invest in innovation; the latter will stifle talent and enterprise and deter people who exist on welfare from seeking to re-enter the workplace.
As unfashionable as it is to say, nations can’t tax themselves back to full employment. Jobs and growth are not created by state paternalistic power, but by private enterprises free to invest and innovate by being taxed and regulated less.
Fourth, recognise the limits to borrowing. Conventional wisdom holds that the huge debt is manageable because, in a world of very low interest rates and low inflation, governments can just rely on cheap money.
However, a higher debt burden increases our vulnerability to future economic shocks and reduces the government’s flexibility in responding to them. The stimulus spending that leads to rising debt might help us weather the present shock, but it’s not a sound basis for long-lasting recovery, never mind the wasteful spending that distorts incentives and diverts resources from more productive uses.
Supporters of increased government debt say as long as the economy grows at a rate in excess of the interest rate, the burden of the debt will fall. Perhaps. However, high growth rates and low interest rates are not guaranteed in coming years. Without a broad reform agenda that sharpens incentives to create wealth, future generations will pay for the high debt load with crippling taxation and a much-devalued currency.
Fifth, defend the market economy. No matter how much nonsense is spouted about capitalism, remember this recession is the result of government policies to stem the spread the virus. It has nothing to do with the “neo-liberal” reforms of the Hawke-Keating-Howard eras that helped spur almost 30 years of unbroken growth with low inflation, low unemployment and, according to the Productivity Commission, no great widening in inequality.
Nor is it the result of a shrinking state: for more than a decade, government spending on health and education as a percentage of GDP has increased.
History shows that markets are responsible for lifting so many people out of poverty and improving living standards. By linking effort with reward, the market economy creates wealth. Without wealth creation, there is no scope for the taxation that enables the functions society demands: education, health, welfare, defence, a public broadcaster and so on.
I readily acknowledge that in the current climate these suggestions won’t suddenly convert readers to the cause of fiscal discipline and economic reform. “Just as there are no atheists on a sinking ship, there are no free marketeers during a pandemic,” says the esteemed British writer-broadcaster Jonathan Freedland. Fair point.
However, there will come a day when governments need to exercise fiscal constraint and put in place productivity-enhancing policies to grow the economy. If they don’t, then the coming years could be grim beyond belief, with terrible consequences for each and every one of us.
Tom Switzer is executive director of the Centre for Independent Studies.
Tom Switzer is executive director at the Centre for Independent Studies and is a presenter on ABC Radio National.