Ross Garnaut yesterday at the AFR:
It is impossible to snap back to what we had last year. Nor should we want to snap back. Australia’s economy performed badly for most of its citizens in the seven years between the China resources boom and the pandemic – the dog days. Unemployment and underemployment in the later dog days remained well above developed countries that suffered much greater damage from the GFC. Real household income per person and real wages stagnated. Growth of productivity and output per person were lower than in the developed world as a whole, the US and even Japan.
The post-pandemic dog days will be worse than 2013-19 because:
We need to manage an extraordinary legacy of public debt from the pandemic recession;
Business investment will remain lower than the low levels of the pre-pandemic dog days;
There will be reduced gains from trade as a result of the deterioration of our external environment – from problems in our relations with China, slower global growth and increased protectionism in the US and most other countries;
Increased unemployment has permanently damaged the skills of many Australians, especially the young;
Many of our most important economic institutions are weaker – the universities and many businesses; and
Productivity growth, already low in the pre-pandemic dog days, will be lower still.
…The alternative is post-pandemic reconstruction.
Reconstruction requires a massive effort to raise productive investment and productivity, an effort built on acceptance of knowledge in economic, climate and health policy. It would be built around acceptance of the opportunities for Australia in the emerging low-carbon world
economy.So, policies to secure equitable distribution of the fruits are an integral part of a program to lift productivity, employment and incomes.
It will be difficult to lift productive investment, since investment is productive only if it is in industries that do well in the economy of the future.
Investments now – whether in public infrastructure or private business expansion – will be generating output later in the 2020s and beyond. By the 2030s, Australia and the world will be well on the way to a net zero emissions economy – or we will be facing immense uncertainty from disputation over how to deal with rapidly increasing problems from climate change.
Investments over the next few years will have to make economic sense in the low-carbon global economy of the future.
The good news is that there is immense opportunity for profitable investment to build a prosperous place for Australia in that future world economy.
The prize from post-pandemic reconstruction is huge. Integration of taxation and social security around a basic payment to all citizens and a moderate effective rate of taxation on all income would improve equity and also incentives for employment.
A guaranteed income for all Australians would reduce the anxiety that would otherwise accompany the structural change required for restoration.
Thank god somebody is thinking clearly.
