Ross Garnaut - Reset: Restoring Australia after the Pandemic Recession

Published by La Trobe University Press in conjunction with Black Inc. and the University of Melbourne

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Copyright Ross Garnaut 2021

Ross Garnaut asserts his right to be known as the author of this work.

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9781760642822 (paperback)

9781743821619 (ebook)

Cover image: Robert Cianflone / Staff / Getty

Cover design by Akiko Chan

Text design by Dennis Grauel

Typesetting by Tristan Main

IN MEMORY OF MEKERE MORAUTA

Born in Kukipi, 12 June 1946; Died in Brisbane, 19 December 2020

Papua New Guineas first Secretary for Treasury and Finance

Governor of the Bank of Papua New Guinea

Prime Minister 19992002

INTRODUCTION

We have just lived through the sharpest decline in global production and trade that the world has seen since the beginnings of modern economic development. The most rapid fall for Australia, and for the world. How long its recessionary consequences last, and how it affects long-term prosperity, political systems and international order, depend on our knowledge and wisdom and how we use them. Our knowledge and wisdom as Australians, and as members of a global community.

As I write, in the last quarter of 2020, the pandemic is under control in Australia and some of our neighbours in the Western Pacific region. It continues to rage and impose increasing costs in North America, the UK, Europe and most of the developing world. For Australia and its more fortunate Western Pacific neighbours, economic activity is expanding rapidly from a low base. But the earlier disruption from disease and from the shrinkage of economic activity and trading opportunities in the rest of the world casts a long shadow. The arrival and widespread distribution of a vaccine is necessary for the countries still suffering high rates of infection and death to find relief and for the whole world to see the return of substantial international movement of people. This may be possible over the next year or so. But there is still a long and hard road to what were once acceptable levels of economic activity in Australia and the world.

Australias economy performed poorly for most of its citizens in the seven years from the China resources boom to the pandemic. I call these years from 2013 to 2019 the Dog Days. Unemployment and underemployment remained stubbornly high in the later years, well above the rates in developed countries that suffered greater damage from the 200809 Global Financial Crisis. Wages stagnated. Productivity and output per person grew more slowly than in the United States, or Japan, or the developed world as a whole.

This book explains the choice Australians will make over the next couple of years, between a resumption of the Dog Days and a post-pandemic restoration of Australia.

The Dog Days are our destination once more unless we break sharply with the policies and political culture of the early twenty-first century. This would be an unhappy place for Australians more difficult than the seven years before the pandemic. Living standards would remain lower through the 2020s. Unemployment and underemployment would linger above the high levels before COVID-19 struck. Things would be worse than in the pre-pandemic Dog Days because we would have a legacy of extraordinary public debt. They would be worse because business investment would be lower. They would be harder because there would be less gain from trade due partly to problems in our relations with China, partly to slower global growth and increased protection in Australia and most other countries. They would be worse because increased unemployment has permanently devalued the skills of many Australians, especially the young; and because many of our most important economic institutions first of all, the universities were diminished. They would be weaker because productivity growth, already low before the pandemic, would be lower still. The new Dog Days would be disrupted more than the old by the accumulating effects of climate change and by disputation about how to respond to this. Much lower immigration would hold back total output growth but might improve the living standards of most Australians.

By contrast, the restoration of Australia would follow from an effective effort to loosen the chains that held us down in the Dog Days. It would reset our fiscal and monetary policy to achieve early full employment, while keeping the growth of public debt within manageable bounds. It would involve substantial reform to increase business investment in trade-exposed industries and lift productivity growth led by a new approach to taxing business income. It would be built around joining our main trading partners the developed world and China in creating a zero-emissions world economy, and realising Australias opportunity to be the energy superpower of the emerging world. It would build a productive approach to foreign relations in new circumstances created by the rise of China as an assertive great power with values and institutions that are different to our own: the confident assertion of our own sovereign autonomy and national interest while maintaining open trade and investment relations with the whole world to the greatest practicable extent.

Restoration will require acceptance of a high degree of income restraint by Australians, who have already endured the longest period of income stagnation in our history, through the Dog Days and then the COVID-19 recession. This is regrettable, and many Australians will see it as unfair, since the wealthy continued rapidly to increase their wealth and incomes through the Dog Days, and most also did well in the pandemic recession. Experience has demonstrated that such restraint in the public interest is possible in our Australian democracy if most people accept that the benefits are distributed fairly. There will be widespread support for the necessary reforms only if the many people on low incomes and with insecure employment and little wealth those who were damaged most by the pandemic recession gain from the change. Fairness is integral to any program to lift productivity, employment and incomes. Fairness has to be achieved by means that do not block the path to higher productivity, employment and incomes. That requires reform in our personal income tax and social security arrangements, built around a guaranteed minimum income: the new Australian Income Security payment.