Morrison has all of the flexibility in the world

No modern Australian prime minister has faced the political, economic and social challenges of Scott Morrison. But it's a funny sort of crisis, because no prime minister has ever had such access to the extra resources he can call to bear - if he wants to. It's an odd position for a person not particularly fitted - by temperament, background, imagination or intellectual bottom - for the role of leadership out of a crisis not of his or his government's making. Yet some of his other skills, and what has happened so far, suggest that he may succeed in a way that few of his peers around the world will do.

It's early days yet, of course. The first part of the challenge was in preparing Australia to face a coronavirus pandemic. On the figures, Australia has done admirably so far, though the task is far from over, and, indeed, may never be completely over.

One can criticise individual actions, not least some of the messaging, which is supremely important when one is trying to mobilise the entire population. But comparison with other countries shows that Australia experienced amazingly low mortality and low morbidity in the first wave of the pandemic, and that Australia (and New Zealand) did remarkably well compared with countries with which we normally group ourselves. Indeed, even after making allowances for the particular dumbness of the political leadership of Britain and the United States, and, perhaps, the different seasons of the southern hemisphere, it was an outstanding result.

One can speak with admiration of what was provided for, including, as it turned out, resource-deployment of intensive care beds far in excess of the numbers of seriously ill patients encountered. And of the general success of the timing, and the type of behavioural public health measures designed to limit the spread of the disease into the general population, including social distancing, lockdown and business closures, as well as solid case-tracking.

Some outbreaks should not have occurred - particularly with the Ruby Princess, an appalling mismanagement for which there will probably be no ultimate accounting at federal level. There was also very poor management of crowds at airports, and a failure to realise that the people from whom Australians were most at risk were not people from China, but from the USA. Some well-paid and very senior officials, rather than well-chosen junior scapegoats, should suffer for these misjudgements and their consequences, but with that or not (and I expect not) at least government has learned from the experience.

It may need it, because there is still a significant risk of further waves of exposure, with most of the population - but especially older people and those with compromised immune systems, such as people with diabetes, asthma and respiratory and cardiac conditions - still without any form of immunity. The death toll from a second or third wave of the condition may well be much higher than in the first. It was with Spanish flu a century ago.

For unsatisfactory reasons, we have only the haziest idea of how many people have been exposed to the virus, including those on whom it appears to have no effect at all, those who became carriers and spreaders without developing any symptoms of COVID-19, and those who had only a mild illness. Indeed, even as more than a score of research institutions, including in Australia, are racing to develop a vaccine against the virus, we still have no solid information (from within Australia or anywhere else around the world) as to whether and to what extent previous exposure gives immunity from further infections, and for how long. It is not impossible that there will prove to be only mild immunity for less than a year, and that any vaccine developed will work, to the extent that it does, only for a year or so, as with most modern flu vaccines. The virus is constantly mutating. It is worth remembering that medical research has yet to develop an effective vaccine against any member of the coronavirus family, including the common cold.

Australia and New Zealand, and some other Asian countries such as South Korea, Taiwan, Hong Kong and Singapore, have had such initial success that they have been able to scale back the extent of behavioural controls designed to contain and reduce the spread of the virus. But some of these are already encountering new waves of disease, or, in some places, new sources of it - for example in migrant labour camps.

Evidence of new waves requires a reversion to strict social distancing, restriction of access to crowded public spaces, strict quarantine and isolation for those at particular risk. For prime ministers, premiers and chief ministers, the problem of this lies in remobilising populations, particularly those who have interpreted the success of resistance to the first wave as evidence that the initial measures were an overreaction, rather than proof that such measures are amazingly effective (those inclined to this opinion should consider the mortality in the US or Britain, both places where isolation and distancing controls were half-baked, late, and in many cases half-hearted). But to this cohort will be added people whose personal and family suffering from the economic shutdown, unemployment and reduced income, has gone on, from their point of view, too long.

Already in most countries, political leaders have found it difficult to resist calls from business, or from pressure groups, for the relaxation of controls before medical folk in control of containing the pandemic think wise. One can, of course, be too cautious: no one who argues for tougher controls, or their indefinite duration, can ever be proven wrong. But moving too fast provides a serious risk of again setting ablaze a fire that, for the moment at least, is nearly out, as well as of making the disease endemic, particularly in poor or vulnerable areas, and thus ever smouldering as it awaits just the right conditions (such as a free ride on the flu season now that the southern hemisphere is about to enter winter) for another major outbreak. As events with the national cabinet and different state or territorial decisions about the staging of relaxed controls show, these are matters on which minds can differ, or where local factors make for different risks.

But Morrison's leadership is not only being tested in relation to decisions about when controls are being lifted, or when, and at what pace, the economy is restarted. The government moved decisively, about the time of shutting the economy down, to increase the budget deficit, increase social payments and benefits to those suddenly unemployed, and create a scheme by which wages and salaries could be maintained among about 3 million Australians (it initially promised 6 million) - but by a staggering calculation error provided for only half, while leaving itself with a budgeted underpayment of more than $60 billion.

The fate of this unexpected "saving" - or immediate lack of need for borrowed money originally intended to be spent - is still contentious, regardless of how strongly the Prime Minister and the Treasurer, Josh Frydenberg, attempt to foreclose its redeployment. It will prove politically very difficult not to redirect the money into additional spending, whether to new (and probably higher) payments to those unemployed as a result of the shutdown, or to sections of them (such as casual workers, students, non-Australians or people such as laid-off university staff or the arts industry deliberately left out of the new social safety nets). The national and state responses dealing with victims of the economic shutdown have been reasonably generous by international standards, as well as by measurement of the proportion of gross domestic product involved. But there are still clear losers - some with political clout or capacity to capture public sympathy.

And, after all, a government generally predisposed to an ideology of balanced federal budgets, reduced government debt and reduction of the size of government went against virtually every instinct to borrow big and blow out its deficit in its efforts to restore the economy as quickly as possible. That involved not only a calculation (very wrong as it turned out) about the cost of helping particular groups of employees, but also about the total sum of money needed to kickstart the economy.

Scott Morrison can put on a doleful air and pretend that he has seriously blown out the deficit, and that he cannot go a dollar further - indeed, that he must rein in as far as possible even the spending for which he has made provision. He has, in particular, made a real virtue of intentions of cutting back substantially higher unemployment and Newstart payment rates in September, by when, he hopes, the greater proportion of Australians will be back at work.

Those who have lost their jobs because of coronavirus are, of course, good, solid and decent Australians, just like him. Those who were already on the rolls before the pandemic arrived are again to be regarded as scroungers, work-shy, and to be dealt with in an arbitrary and coercive manner, to punish them for their lack of initiative. Senior social security bureaucrats, if not the hapless folk at the front counter, can hardly wait for a reimposition of their cruel, inhumane and increasingly mechanised controls.

We have had an obsession with balanced budgets, and with at least the aim of a reduction of government debt, at least since John Howard blew the budget in 1983-84 - then, more than a decade later, discovered a $5 billion "black hole" in the last Keating budget. It has become a major political mantra, with competence as a government tending to be judged by success in restraining government spending, running surplus and reducing debt. As a part of the same "fiscal discipline" we have fetishised tax cuts, whether in the form of income tax cuts or corporate rates. Rightly or wrongly (and in terms of the record over the past decade, wrongly), Coalition propaganda has succeeded in planting an image in the average mind that the Coalition is sounder in economic management, so deficits and debt growth will be greater under Labor governments. The flipside, equally successfully planted, is that Labor's instincts are always profligate, and it is dangerous because it is continually attempting to increase the size of government with new programs, and thus the structural size of government.

But the function of fiscal policy and fiscal controls is not primarily about producing a "balanced" budget of government spending and revenues. Analogies of government economic activity with household accounts and living off the card are intrinsically misleading. Government engages in significant economic activity in its own right, without any actual or theoretical requirement that they must be funded by cuts anywhere. Defence spending, spending on healthcare, universities, aged pensions and so on run on their own steam, and even stringent controls by Department of Finance officers are rarely able to effect reductions of any substance.

Beyond the government's own economic activity is the role of government in seeking to use its spending and revenue measures to achieve overall outcomes in the wider economy. That, not a balanced budget of government income and expenditure, is the real purpose of the government's annual budget. If there is a deficit, government is putting money into the economy. If there is a surplus, government is taking it out. The way it does this - whether, for example, it puts more money into education, or more into submarines - can have particular effects on particular industries or regions of Australia. The size of a budget has a direct effect on national economic growth rates, on employment levels, and, often on inflation rates. The Treasury exists, in major part, to monitor the health of the overall economy and to advise in the pulling of the levers that make it work.

Australia has mostly had substantial deficits (and ballooning government debt) over the past decade not because of profligate government spending - by mostly Coalition ministers - but because the economy has been weak, with growth secured more by economic pump-priming than by surges in business investment, or business or consumer confidence. National growth has been well under historical average levels. The Reserve Bank has done all that it can to stimulate extra borrowing and spending by reducing interest rates to historically low levels - levels indeed so low that even reductions can have the perverse effect not of stimulating borrowing (for housing or business expansion, for example) but of reminding Australians of the fragility of the economy, and thus discouraging spending and encouraging the paying off of debt.

Before the pandemic - indeed, before the last election a year ago - Morrison and Frydenberg were seeking to make a virtue of (what they promised) would be the first government surplus in many years. This was, for them and perhaps for a significant section of the public, a major achievement, suggesting prudence, sobriety and good management. That political effect was, for Morrison, probably worth having, at least until the pandemic crisis. Yet the level of economic activity around Australia - of economic growth, balances between import and exports and so on - did not suggest that the national economy was in any sort of equilibrium. Going for a surplus was taking money out of the economy that business and consumers needed to keep up growth and employment levels. With politicians abandoning sensible fiscal policy, the Reserve Bank's control of monetary policy was focused on reducing costs, and increasing incentives, by lower interest rates.

Spokespeople for the Reserve Bank have been arguing for several years that government should be taking advantage of historically low interest rates to itself invest in the economy, particularly through the building of fresh infrastructure (including social infrastructure) but also through the renewal of local, regional and national infrastructure that was deteriorating without adequate provision being made for maintenance and development. If ever there was a time, for example, for a major reinvestment in urban transport infrastructure in major cities, in breakthrough transport and communication reforms, or in creating the buildings and the hardware for new generations of universities, schools and hospitals, it would have to be now, when payments on the money necessary to fund them are only at about 1 per cent (as they were during that great era, from about 150 years to 100 years ago, when state governments and their instrumentalities borrowed to build railways, city tram and train services, and cities were electrified and clean water - segregated from waste water and sewage - was provided to most urban dwellers). That foundation served, among other things, to virtually double Australian lifespans.

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Infrastructure programs before the pandemic were not anything like the size that the Reserve Bank was urging. Failure to take the hint can be primarily attributed to economic ideology among politicians (and in Treasury).

One can expect that Morrison is keen that economic restoration occurs so quickly that there can be a restoration of tight spending controls - and the usual suspects have been quite clear in insisting that nothing the government does should have long-term effects on increasing the size or range of government, or default levels of spending (presently, not counting pandemic spending, about 25 per cent of GDP). They hope, in short, that a blast of cash running through the system will cause a rush of spending right through the economy, increasing the confidence of business entrepreneurs to restore or increase staffing levels, invest in new plants and equipment, and engage in research and development. As this new activity restores employment levels, government (or, at least, sensitive conservative Coalition management) will wind down spending and step out of the way to prevent any crowding out of the private sector.

It wants to return to government as normal. Well, not necessarily exactly as it was before, because some people went broke and will not be going back into the market, and some developments (for example, in remote group meetings through the internet) will cause fundamental changes in work practices. But big and little capitalists, new and old, will be excited into the marketplace. If payments to displaced people are to be quickly wound down, and welfare for scroungers returned to starvation levels, there will of course be continuing incentives for business expansion, not least through tax cuts, reduced environmental, health and safety regulation and a general "let 'er rip" atmosphere.

As Morrison and Frydenberg plan their August budget, it must be remembered that there is simply no economic imperative at all limiting the size of the deficit they must have. It is a political choice on a political agenda. If the government eschews nation-building - or plays to some of its mates and cronies through the continued starvation of arts and culture, the ABC, and the university sector - it will not be because there is no money responsibly able to be spent. It will be because it does not fit the Morrison vision of what government - or the ideal Australia - is all about. The biggest threat to his micro-vision is that the progress to a reopened economy will probably take longer than he expects, with the flowers not blooming simultaneously.