Preparing for the economic recovery
Sydney, along with the rest of the world, is preparing for the COVID-19 pandemic to escalate, and like all organisations we are focused on the health and wellbeing of our team, our members and the wider citizens of Sydney. We are also conscious of the fact that large numbers of people will be economically impacted, and we need to do everything right cushion our economy and be ready to grow again. We are going to have to pull together to get through the public health crisis, as a community and as a society. But what comes after matters a lot — we need to do everything right to help the economy start to grow again when the time comes.
Yesterday the Commonwealth Government announced a stimulus package. This note shares some early reflections on the package, the implications for citizens, then discusses a broader set of ideas that should be considered.
The fiscal stimulus: temporary, immediate, well targeted
Australia managed the GFC better than probably any other country. The mantra at the time was “go hard, go early, go household.” The goal was to get cash into people’s hands quickly, and specifically in the hands of people who would spend it.
- A tax incentive for businesses to buy physical assets, which should stimulate spending and also increase the productivity of businesses.
- Cash subsidies for small businesses, intended to keep them solvent and keep people on payrolls, with a specific program to subsidise apprentices and trainees
- A one-time $750 grant to households who currently receive Government payments —people on Newstart, pensioners, etc. We know that low income people (which does not include all pensioners) are going to spend the money, so this will help them and help the economy.
- Grants for severely affected regions, a relatively small part of the overall package.
We support the Commonwealth Government in taking decisive action. It has been designed to be temporary, so doesn’t lock in fiscal problems after the downturn ends. At the same time, it can be easily expanded if the downturn is severe enough to need it – for example by making a second cash payment to households. It relies mostly on existing programs, so it will not be delayed by having to create new agencies to administer the funds.
We should also note that there are groups of people who are going to need more help. The long-term trend toward temporary, casual, and “gig” workers means there is a large class of people who do not get paid if they don’t show up to work. Iceland has decided to pay people to go into quarantine. New York, Los Angeles, and other U.S. cities are moving to ban evictions on a temporary basis. What about income support for people who lose work but who are not employees of businesses?
Infrastructure as stimulus
Infrastructure, in the sense of old-fashioned Keynesian public works, has fallen out of favour as a fiscal stimulus measure for the simple reason that it can take too long to spend the money. But we think there are strong arguments in favour of including infrastructure as part of future rounds of stimulus:
Firstly, there are a set of projects that are essentially ready to build, which could be pulled forward if money became available. These include maintenance and upgrades across virtually every sector of state Government – think schools, hospitals, and social housing. Every department has a list of small capital projects that didn’t make it into the budget, but which are still very worth doing. Medium-sized projects like More Trains, More Services in Sydney or the level crossings program in Melbourne, deliver huge benefits to commuters and to the economy. Even some larger projects could begin construction within 12-18 months if funding were allocated (most importantly, the initial tunnelling packages for Metro West).
Secondly, the planning work counts as stimulus too. The engineers, architects, and designers are also going to need jobs.
Thirdly, the money spent on building infrastructure actually leaves Australia better off at the end of the business cycle, rather than being just a transitory way to keep money in people’s pockets. It’s simply a better use of funds to actually get something lasting for the public investment.
Finally, and perhaps most importantly from the perspective of economic recovery, announcing major funding commitments to infrastructure is a way to give a long-term signal to shore up business confidence.
Of course, the reverse is also true: if Governments reduce or delay infrastructure spending in order to prioritise other things during a downturn, then it could trigger a recession in the infrastructure sector and send a terrible signal about business confidence.
Unleashing private investment via planning permission
Direct Government spending is not the only form of stimulus available. Just as powerful and just as important are actions that enable private investment. Perhaps the most obvious and significant opportunity here is a NSW intervention to expedite approvals for major transit oriented developments. There has been a move to shift the approval process for these projects to local governments. We can debate the merits of this idea as a general rule, but what is clear is that for councils that lack internal planning capacity, the development approval process is going to take longer.
We would suggest that there is a clear opportunity to unleash hundreds of millions of dollars of private sector investment by selecting a set of high-priority development proposals at train and metro stations and putting them into an expedited State approval process.
Yes, it is essential that the projects be well designed, both in terms of architecture and in terms of the public realm. But not all of the current “process” is essential for good place-making outcomes. This may be a situation where good judgment from reasonable people can get us to a very good result on a faster timeline.
Cushioning the economic impact by supporting people through the cycle and getting ready for recovery
It is time for those of us in the business of long-term planning to think hard about what we need to be doing today to lay the foundations of the economic recovery. The downturn will not be forever, and we need to be ready.
The most impacted parts of our economy at this point are higher education (the third biggest export industry) and tourism (the fifth biggest export industry). For the universities, it may be time to re-assess whether the current funding model is adequate.
For tourism, there may be ways to support employers to keep people on payroll through the downturn, but in many ways we simply have to wait for the market conditions to turn. When they do, we want to be ready to invite the world back to Australia. It will also be an opportunity to think about how we diversify the countries of origin for all parts of the visitor economy.
Because Australia has managed to avoid the ups and downs of the business cycle for so long, it may have forgotten how it works. There is a lot of pain involved. And economies do not come back exactly as they were: we may see new firms and new industries growing fastest. We may see some of the accommodations to the pandemic become permanent – more working remotely, less air travel, greater use of digital teaching methods.
This points to what may be the most important point of all: we need to have our economic fundamentals right, so that new economic engines can emerge to help power growth again.
Firstly, Australia needs to be one of the top destinations of choice for global talent. Reforming the Entrepreneur Visa and the two Global Talent visas would mean Sydney is well placed to capitalise on people looking to make a change following a period of global disruption. Getting international students back will be crucial, but let’s also make it easy for the highly skilled students to stay in Australia after we have educated them. NSW should consider the Western Australian model to encourage skills graduates to stay and help Australia recover.
Secondly, Australia and NSW should make retraining or starting a new business as easy as possible. Many people’s lives will likely be in flux. Free VET or University short courses, funded by Government, could be a great way to up-skill the workforce during a time of disruption. Tax incentives for start-ups should be offered, including reforming the Employee Share Scheme system, broadening the Early Stage Innovation Company tax incentives to include founders, and offering payroll tax reductions for young innovation companies.
Long-term, the role of Government as a leader becomes important. The CSIRO has carriage of many bold national missions — including achieving net-zero emissions and developing our hydrogen industry. These should be supported and funded to provide long-term goals for the economy to work towards.
We are entering a difficult time. Our thoughts go out to everyone who will be touched by the pandemic personally. At the same time, we are committed to doing our part to helping Sydney and Australia manage through and bounce back when the time comes.
During the coming days and weeks, if you have thoughts about what we should be doing to keep the economy moving while we ride this out, and lay the foundations for our recovery, please reach out to me: firstname.lastname@example.org.