There were simpler times in economic modelling when you just pulled lever A or lever B and watched the activity flow or slow (depending on what you needed to achieve).
Lever A was fiscal policy. Governments spent more to prime the economy or spent less to avoid overheating the economy and setting loose an inflation virus.
Lever B was monetary policy. The Reserve Bank cut interest rate to fuel the economic fire or raised interest rates to give it a cold shower. That was then.
Long before the pandemic, economies had started to act a little weird. Interest rates were already so low that most people seemed to barely notice a cut. Official inflation was remarkably well behaved even with historically low unemployment.
Governments had largely maxed out the credit card to prime us out of the global financial crisis and were just starting to see less red ink in the accounts when the pandemic hit. Suddenly the Back in Black album was off the playlist and we were revisiting ‘Highway to Hell’.
Governments had little choice but to max out the credit card again, look under every mattress for spare change and seek an IOU from their grandkids.
This is clearly not sustainable at the current levels. It feels like we are in one of those science fiction movies where you are stuck on the planet and you punt on using the last bit of fuel in the tank to get you back into space. You don’t really have a great plan for when you get into space, but you know that is better than being stuck on the planet.
The current fiscal stimulus plan is vital to buy time and give the economy enough fuel to stop the engine cutting out. However, this will inevitably be followed by a prolonged period of restraint and belt-tightening when reality bites.
So, without Lever A and B to pull like we might in “normal” times, where does that leave us? How about we dust off Lever C?
In the absence of conventional stimulus options, the best lever to pull is to create the conditions for the economy to stimulate itself. We need a plan. And not just an ordinary plan. We need the mother of all plans. Then governments need to set the economy loose and (within reason) get out of the way.
The plan needs to include:
• A locked-in bipartisan nation-building infrastructure program that transforms our approach to city living, people movement, sustainable water resources and hubs of excellence.
• A commitment to become the best democracy in the world and set the benchmark for fair, empathetic, international relations and creating the safe, welcoming hub zone where the Asia Pacific comes to invest, visit, study and trade.
• Giving business the confidence to invest and create jobs. This includes getting real on a tax system that makes us globally competitive and gives large corporations incentives to keep jobs onshore.
• Getting serious about a more streamlined economy without ever-growing waves of red tape and regulations (across multiple layers of government) that strangle businesses.
• Simplifying the industrial relations system to give flexibility to employers and employees to work in a way that suits a contemporary, post-pandemic, technologically connected economy and workplace.
• Preparing the workforce properly for what is ahead and investing in skills and training systems purpose-designed for the emerging economy.
• Fast-tracking business capabilities in exporting, digital enablement and innovation.
• Mapping pathways to re-establish Australia’s energy advantage and achieve net-zero emissions by 2050.
• Creating an economy of big ideas that capitalises on the things we are good at. Play to win on the global stage and get even better at the things we already do well.
Governments have an important role in the next phase of our national journey, but the constant obsession with what our leaders and government are going to do to fix every problem in existence has to end.
Governments need to get us off planet pandemic, clear the meteors and plot a course. With the right conditions, smart Australian thinkers and entrepreneurs will take it from there.
Shane Rodgers is the Queensland-based national Chief Operating Officer for Australian Industry Group, a peak membership group for industry and business. He is a former business executive, editor and journalist.
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