Could COVID-19 be a chance for structural economic reforms? Here’s one economist’s ideas
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Australia’s health system may have escaped the worst of COVID-19, but there’s no escape for the economy.
The defining statistic, the GDP fall, won’t be known until September when June quarter GDP will be released. Even the March quarter’s statistics are still a month away from being released.
But there are already signs the economy is taking a bruising such as spikes in JobSeeker payment receipts. Commonwealth Bank of Australia says 50 per cent of its accounts have received JobSeeker payments.
Newly appointed CBA chief economist Stephen Halmarick has forecast a small GDP decline of 0.4 per cent for the March quarter but an 8.5 per cent fall for the June quarter.
He then forecasts a modest improvement in the September quarter and “better growth” in the December quarter with the overall 2020 result being a 5 per cent drop.
Bloomberg economist James McIntyre predicts a similar result with three straight quarters of retraction and an overall impact of 6 per cent.
While this will be the biggest contraction in nine decades, the pair both acknowledged this would have been worse without the government’s interventions.
Both economists agreed government support would need to continue for the economy to get back on its feet.
Halmarick went further than that and suggested now was an ideal opportunity for economic reform. He thinks this could set the Australian economy up for another long period of growth.
This includes things like infrastructure spending, including transport and IT infrastructure, and cutting red tape.
Halmarick also believes now is the time to consider micro-economic reforms such as establishing a closer relationship between the Commonwealth and the states.
“A new and more efficient financial and planning relationship between the Commonwealth and various state governments would be very helpful for the economy,” he said.
“Reforms will need to ensure the federal and state governments work more closely together to set and establish economic, tax and population policies.
“The very successful operation of the current National Cabinet supports changes to the level of co-operation and collaboration between the federal and state governments well past the COVID-19 period.”
Halmarick suggested governments consider the replacement of inefficient state taxes such as stamp duty, Canberra’s role in funding infrastructure and a long-term sustainable population strategy.
He also called for changes in the industrial relations framework, saying greater flexibility would be a positive thing.
Halmarick pointed to things like working from home and free child care.
“Hours at the office is no longer the benchmark for output and productivity,” he said.
The Morrison government’s stimulus will need to be paid back some day, but there are arguments against tax rises because they would only hinder any progress made by the stimulus.
One suggestion has been raising the GST from its current level of 10 per cent.
Halmarick stopped short of endorsing this but noted that Australia needed to rely less on business profits and personal income tax. The OECD average rate of tax revenue from these sources is 34 per cent but Australia’s is 58.8 per cent.
“This is unlikely to be sustainable for an economy that needs to encourage investment, enterprise and more productive work,” he said.
Halmarick also noted that two further round of tax cuts were scheduled to be implemented in 2022 and 2024.