Too little, too late, too confusing? The funding criteria for the arts COVID package is a mess


Jo Caust, University of Melbourne

On Tuesday, seven months after the sector closed down in March, applications opened for the government’s COVID-19 arts relief package, named “Restart Investment to Sustain and Expand”, or RISE.

A$75 million will be allocated between 2020 and 2021, but a close read of the criteria for this new funding program raises more questions than it answers.

The recipients will be selected by department officials. Their proposals must be “efficient, effective, economical and ethical”.

And, perhaps most crucially, in the shadow of the “sports rorts”, the NSW “arts rorts”, and the pain felt by the sector during the Brandis era, the final say on where the grants go will be placed in the hands of the federal minister for the arts, Paul Fletcher.

An opaque process

The standard mode for delivering arts funding in Australia is through arms length funding judged by artform peers.

It has been long recognised government arts support should be kept separate from political processes, and arts knowledge – as in fields such as science, medicine or education – is a prerequisite for determining the quality of arts funding applications.

The RISE funding guidelines applications will be assessed by “experienced assessors” from the Department of Infrastructure, Transport, Regional Development and Communications – a department that dropped “arts” from its name this Feburary.

Will these “experienced assessors” have any artform knowledge or experience, or simply be experienced in assessing grants?

The document states the government assessment officials are allowed to consult more widely, including with the Australia Council or State government entities – but this does not imply any peers will be involved in the process.

Further, the officials will only be making “recommendations”, and the minister “decides which grants to approve.”

The arts have an uneasy recent history with arts ministers deciding funding.

In 2015, then minister George Brandis reallocated A$104.7 million from the Australia Council’s funding to fund his own scheme for “excellence”, later named Catalyst.

This did not end well for either the minister or the arts. Brandis lost his job under a new prime minister and Catalyst was retired.




Read more:
After the Catalyst arts funding mess, many questions remain


The Australia Council never returned to its pre-Brandis funding allocation.

In New South Wales in 2018, the ABC reported the minister for the arts had interfered in the funding decision process, overruling recommendations and redirecting money to his own favoured projects. And in the lead up to the last NSW state election, more reporting found arts grants were selectively targeted to organisations in Coalition-held seats.

Efficient, effective, economical and ethical

The funding guidelines say projects must represent “value for relevant money”, defined as “an efficient, effective, economical and ethical use of public resources”.

What is “value for money” in the context of the arts? It could be the amount of money requested, the intent of the project, the quality of the people involved, the numbers in a potential audience, or the amount of money that may be earned.

How do you determine “efficiency”? Is a play with a cast of two deemed more “efficient” than a play with a cast of four? Or is a project more “efficient” if it involves no people at all and only involves technical effects?

Is performance “effective” if it can occur over several platforms – live, in audio and in video – and so it has a broader audience impact? Or perhaps that makes it “economical”.

The meaning of “effective” here could be that a performance moves one to tears or to laughter. It has an emotional “effect” on the audience.

The term “ethical” might suggest no animals are hurt during the production – or maybe it is just another way of describing high moral values.

‘Contributing to government objectives’

The conditions for funding note:

Activities must demonstrate that there is a funding need, contribute to job creation, support Australian artists or performers (or their work), provide experiences to audiences, be of a nature that is likely to be popular with Australian audiences, and financial viability.

These are all factors which are hard to argue in an arts grant proposal. There isn’t a formula for producing popular art.

Perhaps of most concern though is that any proposal should be “contributing to government objectives”.

Many arts projects are critical of government objectives and policies. That is the nature of arts practice which takes a critical or different view of the world we live in.

This potential for public criticism by artists has a chequered recent history in Australia. In 2014, Brandis threatened to withdraw government funding from the Sydney Biennale for refusing sponsorship from Transfield due to their work in immigration detention.




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We should value the Biennale protest, not threaten arts funding


Welcome, with lingering concerns

Given the impact of the pandemic, the arts in Australia are in a dire situation and the sector needs all the help it can get. But it is important the process for making decisions in arts funding is transparent, ethical, and not subject to any political preferencing or rorting.

While this package is welcome – if not long overdue – the selection criteria suggests an approach that does not serve arts practice well and in fact suggests that, once again, a minister for the arts is exercising his personal largesse and judgement.

The Brandis era resulted in a senate inquiry, a divided arts sector and a significant loss in arts funding.

Let’s hope history isn’t doomed to repeat.


Correction: an earlier version of this article misnamed the refused sponsor of the 2014 Sydney Biennale, the sponsor was Transfield.The Conversation

Jo Caust, Associate Professor and Principal Fellow (Hon), School of Culture and Communication, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

HomeBuilder only makes sense as a nod to Morrison’s home-owning voter base


Lisa Adkins, University of Sydney; Gareth Bryant, University of Sydney, and Martijn Konings, University of Sydney

HomeBuilder grants of A$25,000 are being offered to build or renovate a home as part of the Australian government’s emergency economic response to the coronavirus pandemic. Critics note that the program, framed as stimulus for residential construction, benefits already well-off households. It ignores the realities of the housing market, especially the affordability crisis, with housing stress affecting precarious renters, the homeless and those struggling with bloated mortgage payments.

Homebuilder appears to be a bewildering policy. It’s likely to support construction work that would have occurred anyway while failing to meet real housing needs.

However, to criticise HomeBuilder simply as bad policy made on the run is to miss a broader picture. HomeBuilder begins to make a lot more sense when understood as a response to the role of housing assets in shaping both economic inequality and electoral politics.




Read more:
Scott Morrison’s HomeBuilder scheme is classic retail politics but lousy economics


The rise of the ‘asset economy’

We describe this dynamic as the “asset economy”: our socio-economic positions are defined less and less by employment income and more and more by our holdings of wealth-generating assets, especially housing.

The government has touted HomeBuilder as boosting construction jobs through a “tradie-led” recovery. House-price inflation has made the economy particularly dependent on construction jobs. Construction is the third-biggest employer in Australia and the only industry outside the services sector to have had significant job growth in recent years.

However, the government could have boosted construction jobs at least as much, if not more, by investing in social housing or energy-efficient housing. Why then did it choose to make the already well-off even better off by paying owners to add value to their homes?




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Why the focus of stimulus plans has to be construction that puts social housing first


A long history of looking after home owners

It’s no coincidence that, beyond the initial emergency responses to support household and business incomes, the first substantive stimulus the Coalition government announced went to residential property owners.

The rise of the asset economy has occurred in parallel with a shift in voting patterns. The 2019 Australian Election Study observed a move “away from occupation-based voting and towards asset-based voting”. Voters who own housing – owner-occupiers and investors – strongly favour the Liberal and National parties.

Our research on the asset economy reveals the long-term drivers of Australia’s asset-based politics. HomeBuilder is the latest in a long line of Australian government policies over the past four decades to encourage, prop up and reward residential property ownership. These policies have included selling off public housing, tax incentives (especially negative gearing and capital gains tax exemption for the family home) and promoting home ownership as an alternative to welfare programs such as public pensions.




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Fall in ageing Australians’ home-ownership rates looms as seismic shock for housing policy


These policies have not simply encouraged home ownership – they have transformed it. Nowadays the home is a financial asset, an investment financed by growing debt that is supposed to generate capital gains.

Property price increases, driven by the liberalisation of credit and low interest rates, came to be seen as a key route to economic security for households in an economy with stagnant wages and precarious employment. Credit-driven home ownership expanded and property prices grew. Many property-owning households saw major gains in their wealth portfolios.




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HomeBuilder might be the most-complex least-equitable construction jobs program ever devised


Housing is now a driver of inequality

Credit-driven home purchases pushed prices to heights where it became increasingly difficult for people to enter the market. In Australia as well as in other Anglo-capitalist countries ― including the United Kingdom, the United States and Canada ― rates of home ownership show the same pattern from 1980 to 2020: increases followed by decreases.

In large cities such as Sydney and Melbourne price inflation over time has made it virtually impossible to buy a house on the basis of an average wage alone. As a result, private rental markets have expanded, rents have soared and new modes of occupancy have emerged, including multigenerational and shared living. These renters are not simply locked out of home ownership but also out of the wealth it generates.

Graph showing changes in rates of home ownership and rental by households from 1994-95 to 2017-18

Source: AIHW. Data: ABS 2019, CC BY

These trends have opened up a rift between those with and without housing assets. This entails not just major differences in levels and patterns of wealth accumulation, but also in life chances. The asset economy has fundamentally reworked the social structure, or what sociologists study as patterns of “class” or “stratification”.

This means even when people have similar jobs or earn the same wages, deep inequalities can exist between those who own assets and those who do not.

These trends are particularly notable among younger generations, giving rise to stark new forms of inequality. Those who are set to inherit housing assets or whose access to parental wealth offers a route into home ownership have a distinct advantage. They can benefit from property-based asset inflation and capital gains.




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The housing boom propelled inequality, but a coronavirus housing bust will skyrocket it


Shoring up the base in a crisis

HomeBuilder is a product of the electoral politics that emerged out of this asset economy. Asset owners vote with their feet and resist any changes that would jeopardise the long-lived advantages that asset ownership gives them. The result of the 2019 federal election, when Labor’s policy was to reduce the benefits available from negative gearing and the capital gains tax discount, showed this.

The government knows as long as it keeps in place the advantages that flow to home owners, residential property investors and the “bank of mum and dad”, they form a powerful core of the Coalition’s electoral base. It’s offering a stimulus measure directed specifically at this constituency, adding yet more value to their assets at a time of economic uncertainty. HomeBuilder is an asset owner’s policy aimed at appeasing and shoring up the Liberal-National party’s electoral base.

As home ownership rates decline and asset-based inequalities increase, just how long such tactics can produce electoral success remains a critical question.The Conversation

Lisa Adkins, Professor of Sociology and Head of School of Social and Political Sciences, University of Sydney; Gareth Bryant, Senior Lecturer in Political Economy, University of Sydney, and Martijn Konings, Professor of Political Economy and Social Theory, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

$400 million in government funding for Hollywood, but only scraps for Australian film



Marvel Studios

Jo Caust, University of Melbourne

On July 17, Prime Minister Scott Morrison announced an additional A$400 million to attract film and television productions to Australia until 2027.

In a press release, Morrison argued Australia is an attractive destination due to our relative success in managing COVID-19. The idea is that this financial expansion of the “location incentive” program will attract international filmmakers in production limbo to come to Australia.

What does the Australian film industry get out of this incentive? There is no doubt more film production here will ensure the employment of production staff, technical crews and support actors, many of whom have been badly economically affected by the stoppage in film making. As Morrison notes:

Behind these projects are thousands of workers that build and light the stages, that feed, house and cater for the huge cast and crew and that bring the productions to life. This is backing thousands of Australians who make their living working in front of the camera and behind the scenes in the creative economy.

The existing location offset provides a tax rebate of 16.5% of production expenses spent in Australia, while the location incentive – which this $400 million will go towards – provides grants of up to 13.5% of qualifying expenses.

This new input is predicted by the government to attract around $3 billion in foreign expenditure to Australia and up to 8,000 new jobs annually.

This is not a fund to make Australian films, but an incentive for foreign filmmakers to make films in Australia.




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Global incentives

Many countries offer similar incentives.

The UK offers up to a 25% cash rebate of qualifying expenditure; Ireland offers 32% tax credit on eligible production, post-production and/or VFX expenses for local and international cast and crew, and goods and services.

Singapore is even more generous, offering up to 50% of qualifying expenses. But as a condition of receiving the money, the filmmakers must portray Singapore in a “positive light”.

There are usually caveats: a minimum spend of the film’s budget in the country providing the incentive; a minimum employment of local practitioners on the crew; and in some cases a “cultural test”.

In the UK, productions can earn points towards this cultural test by filming in English, contributing to local employment, and creating films “reflecting British creativity, heritage and diversity”.

Aquaman holds a gold staff.
Aquaman was filmed on the Gold Coast.
Warner Bros

Does Australia apply any similar conditions? The location tax offset requires the company to be operating with an Australian Business Number, and have a minimum qualifying spend in Australia of $15 million, while the location incentive is for “eligible international footloose productions”, that is international films being produced in Australia.

Delights, and concerns

The Australian and New Zealand Screen Association — whose members include Universal, Walt Disney, Sony, Netflix, Warner Brothers and Paramount — commissioned a research report on Australian location incentives in 2018.

The report argued other countries have been more generous in their provision of location offsetting, thereby resulting in a loss of international production in Australia. The association is delighted about this latest announcement.

But how do local filmmakers feel about this funding? Screen Producers Australia, whose members include local producers and production businesses, has said this funding may help to support around 20% of the local workforce, but is concerned about the lack of support for Australian filmmakers making Australian films.

Very rich people stand in a very posh room.
The Great Gatsby was filmed in Sydney.
Warner Bros

This new funding will certainly not help the production and development of locally made films and television. As Screen Producers Australia asserts, foreign made films and producers can now access more government funding in Australia than Australian made films and producers.

A sector in crisis

On June 24, the federal government announced new funding packages to support the “creative economy”. This included $50 million for a Temporary Interruption Fund to help film and television producers who are unable to access insurance due to COVID-19 to secure finance and restart production.




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This $50 million is the only support the government has specifically targeted towards the local film sector under coronavirus. Nearly a month on, no details have been released on how filmmakers will be able to access this support.

Since April 2020, free-to-air and subscription television services have been exempt from the need to adhere to the Australian content stipulations, significantly reducing the amount of Australian television content produced into the foreseeable future.




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Coronavirus TV ‘support’ package leaves screen writers and directors even less certain than before


This was further compounded by an announcement by the ABC in mid-June they would be reducing their commitment to local content production, given ongoing budget cuts.

The capacity of the Australian film and television sector to continue to make Australian stories that reflect our culture is seriously impacted.

While the government is showing support and generosity to foreign filmmakers and commercial television interests, it seems less inclined to demonstrate similar largesse to its own creators.

Some film workers are now likely to be employed, but the sector overall will not be assisted. If our own stories are not being made for our audiences, the on-going loss to the nation will be significant.The Conversation

Jo Caust, Associate Professor and Principal Fellow (Hon), School of Culture and Communication, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia needs a six-month GST holiday



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Isaac Gross, Monash University

Treasurer Josh Frydenberg has spent billions trying to save us from recession. The winding down of JobKeeper scheduled for September means he’ll have to spend billions more.

Many of the stimulus measures talked about are focused on the traditional targets of infrastructure and residential construction.

But this recession is different to previous ones. It has wrought most of its damage to restaurants, retail, entertainment and the holiday industry.

These service sector industries employ the lions share of the Australians at risk.

No matter how much traditional stimulus we offer, very few baristas or chefs are going to be able to find work building high-speed rail lines.

The COVID recession requires a different response.

A GST holiday would fight the recession we’ve got

One that would work would be a GST holiday.

Instantly, and for the next six months, all goods and services covered by the 10% tax would become more affordable.

The concession would be timely, targeted and would generate the maximum economic bang for the government’s buck.




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It would be targeted because the GST doesn’t cover many of the goods people are already buying such as fresh food and medicines.

What it does cover is extra, less essential, spending on things such as clothes, tourism and restaurants – the exact kind of spending we need to stimulate.

Cutting income tax or cash splashes wouldn’t deliver as big a bang for the buck – much of the bonus would be saved, or spent in sectors that don’t require stimulus.

However the only way to get the GST discount would be to buy goods and services, many of them produced by workers who will need support.

It’d be direct money where it is needed

The benefit would also be progressive. Calculations by Peter Varela, an economist at the Australian National University, suggest that the poorest households pay the highest share of their income in GST.

Removing it would eliminate this burden, if temporarily, helping the poorest households the most.

Making it temporary would encourage Australians to spend right now.

A GST holiday that only lasted only six months would force households to consider bringing forward planned future purchases to the present, when they are needed, in the same way as the government’s six month extension of the instant asset write-off is meant to for businesses.

It’s been done elsewhere

The idea was considered by Australia’s treasury during the global financial crisis. Britain’s treasury did it, cutting its GST (called value added tax) from 17.5% to 15% for a year in a measure judged a success.

Britain is reported to be planning to do it again.

Germany has already done it. It has cut its value added tax from m 19% to 16% until the end of the year.

Australia baulked at the idea during the global financial crisis because it was considered too difficult to get the premiers to agree to it.

But it mightn’t be as difficult now. The COVID-19 response has generated a new surge in cooperation between state and federal leaders for the good of the nation.




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Cutting unemployment will require an extra $70 to $90 billion in stimulus. Here’s why


A fly in the ointment would be who paid for it. The six month holiday might cost A$35 billion. While the states traditionally receive the GST revenue, in this instance the bill for the cut should be paid by the federal government.

It’s the federal government that is responsible for managing the national economy. State budgets, already hard hit, shouldn’t be further damaged.

Over to you Treasurer Frydenberg. Your economic statement is due on July 23. The budget is due on October 6. You could do worse than emulate Germany and the United Kingdom.The Conversation

Isaac Gross, Lecturer in Economics, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Cutting unemployment will require an extra $70 to $90 billion in stimulus. Here’s why



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Brendan Coates, Grattan Institute; Matthew Cowgill, Grattan Institute, and Tony Chen, Grattan Institute

After managing the first stage of the COVID-19 crisis so effectively, the government now faces a bigger challenge: getting us back to work.

The official employment figures indicate the scale of what’s needed. In the past two months number of Australians with a job has fallen by 835,000. Millions more are in jobs kept on life support by JobKeeper.

Employed Australians, total

Includes Australians regarded as still employed because they are on JobKeeper.
ABS 6202.0

The Reserve Bank’s latest public forecast has the unemployment rate peaking at 10% and then falling to 6.5% (baseline scenario) or 5% (optimistic scenario) by mid-2022.

In Grattan Institute’s latest report, The Recovery Book, released this morning, we argue this isn’t ambitious enough.

The case for ambition

The bank and the government ought to aim for something better, closer to 4.5%.

This is the rate it has previously identified as “full employment”, the lowest Australia can sustainably achieve without stoking inflation.

It would mean bringing unemployment down 1.5 percentage points further than it might otherwise fall over the next two years – to somewhere between 4% and 5%.

Projected unemployment with and without extra fiscal stimulus

RBA forecasts linearly interpolated between 6-month intervals. ‘Full employment’ corresponds to the RBA’s pre-COVID estimate, plus and minus one standard error band.
Grattan calculations, RBA May 2020 Statement on Monetary Policy; Lucy Ellis, 2019 Freebairn Lecture in Public Policy

The bank has passed the baton

With the bank’s cash rate already cut to 0.25%, conventional monetary policy (cutting the cash rate) has run out of steam.

Unconventional policy will help.

The Reserve Bank is advancing cheap money to private banks for onlending to businesses, buying government bonds to keep the three year bond rate near 0.25%, and has pledged to keep the cash rate at 0.25% for the next three years.

The bank can and should do more, but the rest will have to be done by government spending and tax measures, so-called fiscal policy, of the kind that has already been proved effective in suppressing unemployment.

We’ll need $70 to $90 billion

We estimate that reducing unemployment by 1.5 percentage points by mid-2022 would require additional stimulus of A$70 billion to A$90 billion over the next two years, equivalent to between 3% and 4% of GDP.

This is on top of the more than $160 billion committed to JobKeeper and other coronavirus supports to date.

Here’s how we make the calculation.

First, to reduce unemployment by that much we estimate that real gross domestic product needs to grow by about 4 percentage points more than forecast over the next two years.

The estimate is based on previous work by economist Jeff Borland. Jeff kindly updated his calculation with us for this article, finding that each one percentage point increase in annual GDP growth reduces the unemployment rate by around 0.38 percentage points.




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Second, we assume each dollar of stimulus in a particular year increases GDP in that year by between 80 cents and one dollar (some of the rest is saved and some leaks overseas).

This estimate of “fiscal multiplier” is slightly higher than that used by treasury during the global financial crisis but is in line with recent academic work finding that stimulus measures are more effective when monetary policy is out of ammunition.

If the fiscal multiplier isn’t as high – or if the recovery is more sluggish than expected, more stimulus might be needed.

There’s little risk of overkill…

A few weeks ago Reserve Bank Governor Philip Lowe raised the possibility that the crisis had pushed the minimum sustainable rate of unemployment higher, from 4.5% to nearer 5%, on the face of it making a case for less ambition.

His concern was “scarring” – the risk that some of the people who lose their jobs will become so damaged they become unsuitable for future employment, meaning that employers looking for staff would rather bid up the wages of existing workers than employ them, fuelling inflation.

But, if anything, his concern is a powerful argument for spending more, and more quickly, in order to avoid scarring. There’s good evidence sustained high unemployment hurts the economy in the long term.




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And if the extra spending did fuel inflation, it mightn’t be such a bad thing.

Inflation has been below the bank’s target for years. If it gets above it and becomes a problem, the bank can dampen it by raising rates.

…and little time to lose

The extra stimulus will need to be announced soon: on or well before the federal budget scheduled for October. Fiscal measures take time to have their biggest effect.

We are facing a “fiscal cliff” when measures including JobKeeper and the enhanced JobSeeker payment are withdrawn at the end of September. To escape it, they will need to be wound down more gradually, as the international Monetary Fund warned last week.

There are plenty of ways to maintain support including further cash payments to households, along the lines of those in the global financial crisis showed were effective in boosting spending, as well as spending on things such as social housing, roads and school maintenance.

Fear of debt needn’t hold us back

Extra stimulus will mean extra government debt. But the Australian government can now borrow for 10 years at a fixed interest rate below 1%. Adjusted for inflation, that’s a negative real interest rate, making debt more affordable than it has been in living memory.

There will naturally be concerns that further debt will place a burden on younger generations. But they are the generations that will be lumbered with the costs of worse than necessary unemployment, some of it very long term unemployment, unless we act.

In the worst case, they’ll ask why we didn’t do more.




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The Conversation


Brendan Coates, Program Director, Household Finances, Grattan Institute; Matthew Cowgill, Senior Associate, Grattan Institute, and Tony Chen, Researcher, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital Signs: COVID-19 recession is different – and we need more stimulus to deal with it.



Shutterstock

Richard Holden, UNSW

Australia has done well on the public health front during the COVID-19 pandemic, thanks to decisive action by the National Cabinet in March. Australia has done better than most countries on the economic front, too, thanks to the federal government’s large fiscal measures.

But we are at a crossroads.

By September, we may well have largely dealt with the public health aspects of the pandemic. But the economic recovery will only just be starting. The danger is that misunderstanding the nature of this economic crisis will lead the government to bungle that recovery.




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This recession is not like any recession in living memory.

Those of the 1980s and 1990s were “business cycle” recessions. The economy outpaced its inbuilt speed limit and inflation rose. To curb inflation, central banks pushed up interest rates. Those higher rates ended up choking off investment and spending too much.

The global financial crisis of 2008 was different again. That basically involved a massive dislocation in credit markets due to defaults (or the prospect of defaults) on mortgage debts packaged up and sold as investment products – known as mortgage-backed securities and collateralised debt obligations. When it finally became clear how bad these investments were, global credit markets effectively froze, bringing a range of otherwise healthy companies close to bankruptcy.

COVID-19 Recession

The economic crisis now was caused by a massive supply shock which, in turn, was caused by the virus.

For instance, Sweden’s “self-lockdown” saw economic activity drop 25%. Denmark’s coordinated lockdown resulted in economic activity falling 29%. According to Asger Lau Andersen and colleagues at the University of Copenhagen’s Center for Economic Behaviour and Inequality:

This implies that most of the economic contraction is caused by the virus itself and occurs regardless of whether governments mandate social distancing or not.

This is COVID-19 Recession phase one – a big supply shock while the virus ravages both the community and the economy.

Once the public health crisis has been brought under control, countries will emerge from the supply shock with fractured economies.

Australia will likely be in this position in the next couple of months. Household and company balance sheets will be badly damaged. Consumer and business confidence will be low. Unemployment high. Underemployment higher still. Renters or mortgage holders at greater risk of defaulting on payments.




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This will mark the beginning of COVID-19 Recession phase two.

Supply shocks create demand shocks

In a remarkable paper published in April, economists Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub and Iván Werning develop a theory of what they call “Keynesian supply shocks”.

Their theory demonstrates how supply shocks can create demand shortages when markets are “incomplete” – which is pretty much all markets, all the time.

The COVID-19 supply shock is the shutting down, directly or indirectly, of industries such as hospitality and tourism. Workers in affected businesses lose their jobs and income. If they were on low incomes – as many workers in food and accommodation services are – their “marginal propensity to consume” (rather than than save their income) would have been high. If you don’t earn much, you don’t save much – you just spend. So their drop in consumption will be large unless they borrow to spend.

This is going to lead to an overall demand shortfall unless the workers who still have jobs and steady incomes start spending a lot more. But people typically won’t want to do that for multiple reasons – including the fact the goods consumers ordinarily spend big on – such as exotic holidays – are still not available.

The policy response

This all suggests policy responses to this economic crisis must be different to past responses.

Phase one has required ameliorating the supply shocks as much as possible.

Arguably the Australian government’s JobSeeker and JobKeeper programs have done that reasonably well – although JobKeeper in particular should have been better designed.

Phase two needs to deal with the demand shortfall that will become more apparent as the supply shocks fade.

That will require more stimulus, not less. Any focus on getting back to a balanced budget – encapsulated by Prime Minister Scott Morrison warning the government can’t save every job and needs to be “extremely cautious about expenditure” – is precisely not what is needed.




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In times of widespread falls in demand, with monetary policy that can no longer respond, fiscal contraction simply makes the crisis worse.

It’s a lesson learnt long ago by economists of all stripes, and immortalised by former US Federal Reserve chairman Ben Bernanke on the occasion of Keynesian critic Milton Friedman’s 90th birthday in 2002:

Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

Mr Morrison needs to remember that lesson.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

We may live to regret open-slather construction stimulus


Martin Loosemore, University of Technology Sydney

Many countries around the world, including Australia, are looking to the construction industry to help rebuild economies. Industry bodies such as the Master Builders Association are strongly urging governments to bring forward spending on already approved infrastructure projects. They also want these projects to be unbundled into smaller contract packages so small local businesses and the whole sector get a piece of the pie.

We should not ignore the risks involved in the rush to get the economy going again. We will pay for mistakes made now in the form of debt created by cost blowouts and unscrupulous developers. We will have to live with poor-quality, ill-conceived and environmentally damaging developments for decades.

Of course, construction and infrastructure programs provide us with a powerful stimulus tool. It’s why federal and state governments are looking to this sector to drive recovery. The social impact of investing in more construction and infrastructure could certainly be significant.




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Construction is one of the country’s largest employers. The sector employs about 1.2 million people directly, and indirectly much more. It’s one of the largest employers of apprentices, youth and disadvantaged groups such as Indigenous people and refugees.

Investment in construction flows through the broader economy. The Australian Bureau of Statistics estimates every A$1 million spent on construction output generates A$2.9 million in output across the economy as a whole. Every job created in construction leads to another three in the wider economy.

Knowing this, state and local governments are relaxing hard-won controls to fast-track projects. Planning ministers are being given more power to override many of the statutory timeframes that govern normal planning and approval processes.

Fast-track approach creates risks

This approach creates many risks as well as many opportunities. If we do not control these risks in our rush to stimulate the economy, we are likely to regret this in future.

While the construction industry includes some world-class firms, the government-commissioned Productivity Commission inquiry into infrastructure raised many concerns about the lack of transparency and trust in development and infrastructure approval processes. It noted infrastructure project overruns were common. The extra costs amount to billions of dollars.

We are already battling a crisis of confidence in the residential apartments sector. Poor-quality buildings have devastated people’s lives. In New South Wales, the state government has appointed a building commissioner to clean up the mess.




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New NSW building law could be a game changer for apartment safety


Unscrupulously exploiting a crisis

Relaxing controls also opens the door to unscrupulous developers to exploit the crisis for their own personal gain. Transparency International’s recent submission to a Senate inquiry argues that powerful groups have too often prevailed over public interest. It warns:

Businesses in highly regulated industries, such as transport, mining, energy and property construction, all actively seek to influence politicians, although the channels of influence vary by industry.

In some countries we are already seeing developers exploiting the COVID-19 crisis to argue for relaxation and even removal of regulations put in place to ensure projects contribute positively to the communities in which they are built. A former senior adviser to US President Donald Trump has argued that his administration should trigger an emergency override of America’s environmental protection laws and establish “Australian-style permitting”.

If fast-tracked projects are undertaken without appropriate controls purely to boost the economy rather than meet a real community need, then we will be paying for this crisis for far longer than we expect.




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Focus must be on community benefit

As Elizabeth Mossop warned in her recent Conversation article, our governments are committing taxpayers to further debt to stimulate recovery from the economic impacts of the coronavirus pandemic. Infrastructure spending is great for economic stimulus, but it still has to be the right kind of infrastructure that meets local community needs.

Mossop argues for small-scale stimulus projects focused on local small businesses, rather than multinationals, to deliver broad, long-term community value. Investing stimulus funding in local businesses means the money recycles in the community, reduces inequality and helps meet real community needs.

Of course we need to move quickly to rebuild our economy. But we must also place the community at the heart of any decisions about which projects we push through the system.




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We could learn much from the principles of urban acupuncture, which would advocate a community-based approach to stimulus. It would also warn against awarding contracts to major multinationals. These corporations suck money out of needy communities into the pockets of shareholders with no links to the communities we need to help.

Research shows procuring from local businesses provides a 77-100% economic advantage and an 80-100% increase in jobs compared to procuring from multinationals.

If stimulus programs follow traditional approaches to infrastructure procurement in Australia, then we will miss an unprecedented opportunity to tackle growing inequity. Even before this crisis, many younger and poorer members of our society were already being left behind.The Conversation

Martin Loosemore, Professor of Construction Management, University of Technology Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

How to improve JobKeeper (hint: it would help not to pay businesses late)



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Danielle Wood, Grattan Institute and Nathan Blane, Grattan Institute

JobKeeper has been a lifeline for the economy.

Given the ferocity of the economic hit caused by COVID-19, the government was right to prioritise speed over perfection.

But the current review of the A$70 billion provides an opportunity to iron out some of its crinkles.

The biggest priorities should be moving to upfront payments, expanding the scheme to cover temporary workers and short-term casuals, and avoiding the looming government support cliff.




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The government should also introduce a separate part-time payment rate, to better target the scheme and provide greater bang for buck.

The biggest barrier to the effectiveness of JobKeeper is the fact that the employer gets it in arrears, weeks after she or he has paid it to employees.

Stop paying businesses late

Businesses without the necessary cashflow have been encouraged to take advantage of government-backed loans, but for many the process has been too slow or unacceptably risky.

It might help explain why the take-up of the JobKeeper has been lower than expected.

Those cash-flow-constrained businesses that have been able to access finance have been forced to borrow on an ongoing basis in order to pay their workers.




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Given that the government now knows how much it needs to pay to businesses that are in the scheme, it would be very easy to switch to payment in advance by doubling up a payment – moving to being in step with, rather than behind, employers’ needs.

With government able to borrow so cheaply – at less than the rate of inflation – the fix would cost it little, and would add little to JobKeeper’s total cost.

The case for extending JobKeeper to temporary visa holders is clear cut.

Include more workers

Temporary visa holders can’t get safety net payments such as JobSeeker. And many of them are stuck here: there are no affordable options for them to return to their home country.

Leaving people without support does not do much for Australia’s reputation as a global citizen – many of the countries with which Australia normally compares itself have extended wage support to the wages of temporary residents.

It means JobKeeper is far less generous for businesses in sectors that rely on temporary visa holders, including the hard-hit sectors such as hospitality, retail, healthcare, and aged care.




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If temporary visa holders sign up to the scheme at the same rate as other residents, including them for six months would cost about $10 billion.

Short-term casuals – those who’ve worked for their employers for less than a year – have also been excluded, which has also left big holes in support for some of the worst-hit sectors and some of the lowest-income Australians.

Including short-term casuals would cost an extra $6 billion.

Pay part-timers less

JobKeeper pays all eligible workers at the same flat rate, regardless of the hours they worked before coronavirus hit or afterwards. More than 80% of part-time workers are believed to have received a pay rise under JobKeeper.

This means the scheme costs more than it needs to. It also raises questions about fairness between employees within businesses, because a part-time worker gets as much as full-time worker.

No doubt the government chose a flat rate to make the program simple, but a simple way to adapt the scheme would be to follow New Zealand and introduce a lower rate for people working less than 20 hours a week.




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It could mean that full-time employees on JobKeeper continued to receive $1,500 a fortnight, while employees working less than 20 hours a week got $800.

The saving, more than $2 billion per quarter, could be used to fund some of the extensions to the scheme we propose.

Extend it for businesses not recovered

The universal September 27 cut off date is blunt. It does not recognise that social distancing constraints will continue to affect some businesses for many months and that different sectors will bounce back at different rates.

Pulling back assistance on businesses that are still significantly revenue constrained risks undoing much of the good work JobKeeper has done to preserve jobs.




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Businesses currently receiving the payment should be required to re-test against the turnover requirement at the end of July and September. Where a business’s turnover climbs to higher than 80% of pre-crisis levels, support could be withdrawn with notice.

Businesses that remain below the recovery threshold in September should receive JobKeeper for an additional three months.

While the incentives would not be perfect – some businesses close to the threshold would have a short-term incentive to limit their recovery – it would be better than withdrawing support prematurely for scores of businesses.

JobKeeper is good, we can make it better

As well as being more effective in maintaining productive capacity, the approach we advocate would help cushion the “fiscal cliff” due at the end of September when all major coronavirus supports are due to come off at once.

Three months into its short life, JobKeeper is performing well. Now is the time to get it right.

Overall the proposed changes would cost a little more but they would better target the scheme and ensure it delivers on its promise of keeping Australians in jobs.The Conversation

Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan Institute and Nathan Blane, Analyst, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Businesses get extension for instant asset write-off



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Michelle Grattan, University of Canberra

In its latest move to spur business investment, the government will extend its $150,000 instant assets write-off until the end of the year.

The six-months extension, which will be legislated, will cost $300 million in revenue over the forward estimates.

As part of the government’s pandemic emergency measures, in March it announced that until June 30 the write-off threshold would be $150,000 and the size of businesses eligible would be those with turnovers of under $500 million.




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The government is battling a major investment slump. Bureau of Statistics capital expenditure figures show non-mining investment fell 23% in the March quarter and 9% over the year to March.

Spending on plant and equipment fell 21%, spending on buildings and equipment plunged 25%.

An extra six months

Apart from giving businesses generally more time to claim the write-off, the government says the extension will help those which have been hit by supply chain delays caused by the pandemic.

The write-off helps businesses’ cash flow by bringing forward tax deductions. The $150,000 applies to individual assets – new or secondhand – therefore a single enterprise can write off a number of assets under the concession.

With rain breaking the drought in many areas, farm businesses are getting back into production, so the government will hope the extension will encourage spending on agricultural equipment.

About 3.5 million businesses are eligible under the scheme.




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The instant asset write-off has been extended a number of times over the years, and its (much more modest) thresholds altered.

On the government’s revised timetable, from January 1 the write-off is due to be scaled down dramatically, reducing to a threshold of $1000 and with eligibility being confined to small businesses – those with an annual turnover of below $10 million.

But there will be pressure to continue with more generous arrangements, to head off the danger of a fresh collapse in investment.

In a statement, treasurer Josh Frydenberg and small business minister Michaelia Cash said the government’s actions “are designed to support business sticking with investment they had planned, and encourage them to bring investment forward to support economic growth over the near term”.The Conversation



Commonwealth Government

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.