Australia’s recession was coming long ago. How do we now recover?

Australia is now in recession. It’s easy to blame COVID-19 for the recession we didn’t have to have. But Australia’s recession was coming with or without COVID-19; for a very lucky country, luck was never going to be enough. We could’ve avoided this recession I think, and here’s why:

Former RBA Governor Glenn Stevens had previously argued that the recession was definitely coming, that the only uncertainty was the timing of it. He got more than he bargained for, because you could say that nothing has been more uncertain in recent living memory than COVID-19.

What has been more certain in living memory is that mining booms will end in bust. Australia’s mining boom a decade or so ago boosted our iron ore, coal and natural gas exports like never seen before, and in the process, drove up costs and the Australian dollar for too long. This was at the expense of other sectors, like manufacturing.

Forget about China and when our next mining boom is. China is transitioning away from being a manufacturing economy to a more service-based economy like us. The days of China buying lot of commodities from us are over (or will be soon); consumers don’t buy shiploads of iron ore. It’s a bad idea to rely on others to drive our economic growth and living standards anyway.

Post-boom, the Australian dollar aligned with commodity prices, but the economy was held back by high costs and red tape, leading to low productivity. This would explain why many businesses were reluctant to invest outside the mining industry. This was the case in the lead up to COVID-19.

To deal with this, there were on-and-off talks by the Federal Government of the day about tax reform, industrial relations reform, streamlining our Federation, and innovation, but that was about it. We haven’t seen economic reform worth bragging about since the introduction of the GST (WorkChoices doesn’t count). Meanwhile per-capita income in Australia shrunk as a result of low productivity.

The Australian economy grew at a slower rate in the lead-up to COVID-19 because its potential growth rate (or speed limit) fell, due in part to an ageing population. To grow any faster is to invite inflation, which leaves you with stagnating living standards and the risk of increasing unemployment. In a COVIDSafe Australia, how can we best encourage investment and innovation in order to lift productivity and kickstart the economy again? Here are four ideas:

• Allow low-paid work and streamline industrial awards. A job that an employer can easily generate to give to someone is better than no job.
• Cut red tape that don’t really make any sense.
• Decentralise power throughout our system of government to give power back to the people.
• Simplify our tax system, and cut taxes to make us globally competitive.

All ideas that could’ve been implemented to lift productivity well before COVID-19. If nothing changes, then debt-ridden Australia will be like Japan after they bailed out their banks in the 1990s. Still rich, but not really growing.