Finance Finance News How we’re going to pay for our changed world, once coronavirus is gone

How we’re going to pay for our changed world, once coronavirus is gone

In a matter of days, a decade of government rhetoric on debt has gone out the window. Photo: TND
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There is a lot more to this time of massive change than the immediate crisis of fighting a pandemic.

What many, perhaps most, haven’t understood yet is that our economy and society are being upended.

“In a week we have shifted from a globalised liberal economy and free society to a command economy with closed borders, regimented movement and a welfare state,” Reform Club chairman and former NSW Treasury secretary Percy Allan recently wrote to friends and colleagues.

“And through necessity, all sides of politics support it.

“When COVID-19 is over will people demand stronger government (to cope with crises) or pine for laissez-faire (to allow free will)? That’s an important debate.”

The pace of change in March 2020 was a little overwhelming, maybe quite overwhelming.

That pace is playing a role in the sense of unreality people are feeling and why some have been slow to grasp the need for behaviour to change.

The debate about what sort of society comes after this crisis will have to wait. Everyone involved is too busy dealing with the immediate issue.

Suddenly commit to spending a couple of hundred billion dollars, with more to come.

Throw a million people out of work. Close borders. Close state borders.

Give police extraordinarily broad powers over the population. Have troops enforcing isolation curfews.

Nothing near as big has ever happened as quickly.

Talk to people who lived through the last world war (or be someone who had talked to them when more were still around) and the changes to war-time footing were much more gradual, leisurely even, by comparison.

But some of these big changes do need immediate understanding. One of them is: How we pay for it.

The Australian Financial Review on Tuesday ran a column by its political editor headlined “The huge stimulus numbers throw up the inevitable question”. That question was “How do we pay for it?”

It’s slightly bemusing that nobody at Monday’s media conference thought to ask it.

As it turns out, it’s the government’s intention to pay for the couple of hundred billion dollars of quick extra debt the old-fashioned way: The government will be borrowing the money.

There are possible alternatives, extreme unconventional monetary policy whereby the government could issue zero-coupon bonds directly to the Reserve Bank to print money.

Instead, the Australian Office of Financial Management will issue bonds to the required value and the market will buy them, boosting our government debt total.

In theory, such a sudden flood of extra raising might put some upward pressure on interest rates and, if foreigners fancy our bonds, the Australian dollar.

But these are not times of textbook theory, particularly with the QE twist of the Reserve Bank officially targeting a three-year bond rate of 0.25 per cent and buying about $3 billion worth of bonds a day to achieve that target.

The RBA has even posted the three-year target on its home page, just to underline the commitment.

Given that Monday’s effort was only Stimulus 3.0, with 4.0 and maybe 5.0 yet to come, the AOFM’s current $558 billion of treasury bonds on issue is likely to end up close to $1 trillion.

Remember a decade ago when government debt was a demon figure used to scare the kiddies?

Or June 30, 2013 – the year the government changed – when gross government debt was $257 billion?

It was a nonsense, of course.

It was low government debt and affordable, but a decade of political opportunism painted it as evil.

The reality of our current debt explosion is that it is quite affordable if it pays for a return to anything like ‘normal’ growth.

Like the price of reducing climate change, it is cheaper than the alternative.

If the interest rate on the bonds is below economic growth, the growth takes care of the government’s ability to service the debt.

It would require a mighty bleak world and particularly inept management for Australia’s growth to get stuck below a fraction of a percentage point.

So one of the first changes of our post-COVID-19 political world should be a recalibration of political rhetoric.

It would be too much to ask for the Prime Minister to come clean with the population, fess up to the decade of debt demonisation being largely political BS, like the attack on pricing carbon and a more rational taxing of resources rent.

The debt will have to be dealt with when times suit.

It could be used as a force for good, as a cattle prod (or excuse) for genuine, overdue holistic tax reform that would help create a healthier economy and society.

It would need to be reform that would offend just about every vested interest – broadening the GST, at least capping the franking credit rebates, an inheritance tax, no-exceptions land tax, a carbon price, lower income tax rates, removing the tax-free status of superannuation in the pension phase, et al

“Never waste a good crisis.”

Or it could be used to damage the country with the sort of austerity drive and reduction in government services beloved by the hard right – the small government, low-taxing neoliberal myrmidons exemplified by the Institute of Public Affairs and its alumnae and fellow travellers populating the governments’ ranks.

There is a very important debate ahead about our post-COVID-19 nation.

In the meantime, be grateful the ideologically straitjacketed didn’t hold sway last month or many more of us would be in dire poverty – or dead.