Australia's responded to Corona virus with panicked lockdowns and a reckless spending spree

Governments can always be depended on to react to a good scare, whether real or imagined.  The usual response is to throw money at such scares to appease public fears.  Despite exaggeration by some, the Corona virus (COVID-19) is very real, and dwarfs previous scares (e.g. ozone layer depletion, Y2K, Great Barrier Reef, global warming) in terms of short-term cost and the immediate threat to lives and economies across the globe.

Not long ago, Australians were told that up to 150,000 could die in this country from the virus under a worst case scenario.  Deputy Chief Medical Officer, Paul Kelly, said that the number of infections would range between 20 per cent to 60 per cent of the population.  We were told that, under the best case scenario of a 20 per cent infection rate, about 50,000 people would die.  A moderate scenario of 10 million infections – 40 per cent of the population – would mean 100,000 dead.

Australia has (rightly) reacted with lockdown and other measures (predicted by officialdom to be of at least six months duration).  Australia has, however, gone down the track of many untargeted and ultra-expensive policies, that seem unjustified because they are being introduced when the worst appears to be over in this country.  These policies, broadly copy measures taken in (much more badly affected) parts of Europe, where the virus was let get away.  This is despite Deputy Chief Medical Officer, Nicholas Coatsworth, recently saying that (on a per capita basis) Australia has one of the lowest COVID-19 rates in the world, along with one of the lowest mortality rates.

The daily number of Australians newly testing positive for COVID-19 has now fallen to below 100 (from a peak of nearly 300), but the Government warns there is still a long way to go.  As at 3:00pm on 12 April 2020, there have been 6,313 confirmed cases of COVID-19 in Australia. There have been 21 new cases since 3:00pm 11 April.  Only 59 persons have died, and more than 353,000 tests have been conducted across Australia.  To date, the vast majority of confirmed cases were acquired overseas (about a third on cruise ships) and nearly all the deaths were among the elderly, many of whom had pre-existing chronic ailments.

Thus far, community transmission has been modest (34 per cent of cases) and falling, and it is possible that the total death toll will barely reach triple digits over coming months.  This compares with about 10,000 deaths to date in the UK and about 18,000 in Italy.  Testing, along with targeted quarantine and social distancing, seems to be working in Australia, and our relatively young population helps keep the death rate low.

To put corona virus in perspective, influenza on average causes far more deaths (1,500 to 3,000) per year in Australia, and close to 1163people died on Australian roadsin the twelve months to the end of February 2020.  The selective alarm (in relation to just 59 corona deaths so far) means that the massive proposed spending on corona virus is entirely disproportionate.  Alarmism seems largely reflective of severe effects in some overseas countries, that look unlikely to happen here.  Already several existing drugs have been identified that may killthe virus (e,g, hydroxychloroquine, chloroquine, and ivermectin), and many researchers around the world are trying to develop a vaccine.

Economic output has now fallen quiet across much of the world, with evidence mounting that the world is sliding into deep recession as countries lock down in unison.  (It has been forecast that the forced closure of businesses across the United States will force U.S. growth to contract by 30% in the second quarter and by 5% overall in 2020.]

Big spending policies may have been justified in places like China, Italy, Spain, the UK and the US, where the virus got away to a greater degree.  Australia has not reached their levels of spread, even though we were slow to close our borders, and NSW made a major mistake by failing to quarantine the Ruby Princess passengers.

Issuing edicts, that force the closure of many of our services industries, virtually guarantees a huge jump in unemployment.  A lot of the shutdowns are justified but, if this is kept up for long, many businesses will go broke and never reopen, especially firms with high fixed costs and little current revenue.  Current policies will leave a major increase in public debt, high unemployment, and much lower asset prices in their wake.  There is as yet no plan concerning repaying the increased debt, though somesuggest increasing the GST to 15 per cent.

To date the Commonwealth Government has announced support for the economy totalling $320 billion across the forward estimates, representing about 17 per cent of annual GDP.  (Our GDP being A$1.89 trillion in 2019.)  When you also bear in mind expected falls in revenues (e.g. income tax) you are talking about increased borrowing of perhaps $500 billion, with further deficits certain for a number of years.  As at 6 March 2020, the gross Commonwealth government debt was $573.1 billion so that this could be expected to quickly grow to about a trillion dollars (about 50 per cent of GDP and rising).

There are a number of attributes the government rescue package ought to have:

1.      It should be effective in maintaining economic activity or at least allowing enterprises to survive and subsequently re-open.

2.      It should be equitable both in a horizontal sense and also in ensuring that persons/firms not adversely affected by the downturn do not make windfall gains.

3.      It needs to be fair to those at the margin and not subject them to sharp arbitrary cut-offs.

4.      It should not encourage rorts or avoidance of debts.

The announced package breaks all of these principles to varying degrees, with the $130 billion in wage subsidies being a wanton offender.

The fortnightly subsidy of $1500 per employee is simply enormous, especially for firms in low-wage labour intensive industries that can keep operating.  It will represent a huge windfall for some virus-affected employers, who were expecting to remain open anyway and will now get a large part of their labour costs paid by government.  It also means employees normally earning less than $1500 per fortnight are likely to get a windfall pay rise, while the self-employed (who generally are not paid a wage) get little from the subsidy.

The programme has further inequities because the cut-off is not phased, and because some enterprises have "lumpy" or discretionary sales revenue streams that can be manipulated to achieve eligibility.  The wage subsidy is only available for businesses who can prove turnover has fallen by more than 30 per cent (50 per cent if turnover is usually more than $1 billion).  Enforcing this restriction will be an administrative nightmare.

Jobseekers will get a $550 boost to their fortnightly welfare payments for six months.  While I don't begrudge the unemployed their still meagre incomes (and the Jobseeker Payment had been unduly low compared with pension payments), some very real equity issues arise.

It is, for example, not clear that those who recently lost their jobs because of the corona virus impacts are more deserving than those who had lost their jobs for other reasons in earlier periods (and had been on half the new rate).  Jobseekers also will be in for belt-tightening when the $550 boost gets taken away next Spring.  There are also equity issues concerning the eligibility of casuals and their benefit rates.  Some not long in their jobs will get nothing, while other casuals eligible for the payment will be better off than when they were working (something that should never happen).

The Government will provide a one-off $750 payment to around 6.5 million social security, veteran and other income support recipients and concession card holders.  These (windfall) stimulus payments to households (in part) are supposed to support employment levels by stimulating demand.  The reality is that the measure won't help the sectors most affected by the virus because governments have shut these industries down completely.  The $750 payments are simply largesse at a time when the Budget can least afford it, and under circumstances where (largely housebound) recipients have fewer outgoings (because most social venues are closed).

In addition to the fact that stimulus spending works poorly during an economic shutdown, I am personally opposed to governments sending out windfall "cheques-in-the-mail", signalling that the money should be spent.  I think such a policy encourages an entitlement mentality, and undermines traditional virtues of thrift and good financial management.

Government measures are set to cause chaos and major losses in the real estate industry.

Besides physical auctions and open houses being banned (and already contributing to a fall in property prices), a moratorium on evictions has also been introduced.  Additionally, a mandatory Code of Conduct is being introduced for commercial tenancies  The code involves rent reductions based on the tenant’s decline in turnover to ensure that the burden is shared between landlords and tenants.  The Commonwealth (along with some state governments) is also seeking to act as a "model landlord" by waiving rents for all its small and medium enterprises and not-for-profit tenants.

Effectively the Commonwealth and some state governments are "hanging landlords out to dry" by overtly encouraging both residential and commercial tenants not to pay their contracted rents.  While many commercial landlords are large corporations (some overseas-owned), residential landlords are generally mum and dad investors (often retirees or people with mortgages).  Such people are now effectively being expected to provide and subsidise social housing, that is normally a government responsibility.

[There is a precedent illustrating what happens when a "no evictions" policy is adopted.

According to the ACT Hansard, in 1983 the then Minister for Territories and Local Government, Tom Uren, began a policy of no evictions under any circumstances in respect of ACT public housing tenants.  Before the 1983 edict, rent arrears hovered at just over $200,000 per year. Within two years of implementing a no-evictions approach, that figure increased six-fold, because many more public housing tenants simply stopped paying their rent.  Before the minister changed his mind in 1985, 3,800 out of 11,000 tenants, owing a total of $1.2 million, were in arrears.]

The government has also introduced other measures, which seem imprudent.

Nearly 618,000 Australians have applied to get an early release of their superannuationunder the Federal Government's plan to help people out of work and facing financial hardship during the corona virus pandemic.  Clearly, if withdrawals of super by such numbers are allowed, the retirement income system is threatened.  Additionally, if funds respond by liquidating shares or property to pay the money, this will place asset markets (already in crisis) under further pressure.

Under the Higher Education Relief Package, there will be 20,000 places available in short-term nursing, teaching, health, IT and science courses, and universities will retain the $18 billion budgeted this year, regardless of any fall in enrolments.  Maintenance of funding is probably justified but it is hard to imagine demand for new short term courses (or how worthwhile courses can be put together at such short notice) under lockdown conditions

Lockdown/quarantine restrictions are having an important effect in preventing spread of the virus.  There is an undisputed need, for example, to quarantine anyone with the virus and persons in close contact with them, as well as others (e.g. travellers from overseas, those on cruise vessels) considered high risk.  At the same time one gets the impression of a panicked lack of targeting because the shutdown does not vary much with either regional risk or indoor/outdoor location.

Most outdoor activities are very safe, where social distancing is followed, and should be permitted.  Victoria has many complete bans on innocuous activities.  Fishing, hunting, boating, camping, and golf are not allowed during the pandemic.  In NSW convoys of police have been targeting parks and beaches ordering many people to go home immediately.  Outdoor auctions and rural clearing sales are also among banned activities, many outdoor sports have been stopped or discouraged, and commuting between home and second homes has also been prohibited.

Share prices for childcare providers have rocketed (the four listed childcare operators all went up around 30 per cent) immediately after the government announced a $1.6 billion plan to provide free childcare to working parents during the COVID-19 crisis.  The sector had been struggling as parents (as might be expected) pulled kids out because of the virus.  Childcare (in my opinion) is higher risk than schools, which have been widely shut down, because childcare is a major source of spread for colds, flu and other viruses, and social distancing at centres is almost impossible to enforce  Free childcare in the current circumstances is a ridiculous response to special pleading.  Instead it makes sense to shut down child care centres while shutdowns are the rule for schools.

Counselling services for families at risk of, family violence (such as 1800 Respect and Mensline Australia) will share $150 million.  This is a lot more money for programmes that already benefitted from large funding increases for little apparent result.

The Morrison Government’s $130bn wage subsidy package has now passed both housesof Parliament with Labor support, after the Coalition rebuffed calls to expand eligibility to one million short-term casuals and to temporary visa workers.

The timing of big spend has been rushed because of the circumstances.  More pertinently the size of the spend seems unnecessary, and does not properly address the biggest need, which is to assist badly affected businesses with their fixed costs (especially rent and interest).  What particularly disappoints is an almost complete lack of effort to mitigate the burden on the taxpayer or a plan to reduce restrictions as soon as feasible.  For example, little effort is being made to require use of leave entitlements or to provide loans instead of unconditional handouts.  If the lockdown lasts six months as planned (and I have strong doubts that it will), the economic damage will be huge.

The $320 billion being spent to alleviate the effects of the virus on the economy and on public health is a huge amount of money.  We need to remember that if these funds were allocated to other areas of health services (e.g. pharmaceuticals, coronary care, cancer) the money would probably save a lot of lives (maybe even more than we will lose to this virus).

Overall, the Morrison Government (with State governments in tow) is acting like a bunch of socialists.  Over the course of little over a month, fiscal restraint has been entirely dumped in favour of an unrestrained spending spree, and personal freedoms have been unjustifiably restricted in many areas.  Eventually a time of reckoning will come, and all the increase in debt will need to be paid for.