POLITICS AND THE PANDEMIC

As the lockdown in Australia took effect during the first half of 2020, well known commentator and Editor-at-Large at The Australian Paul Kelly, spoke for The Sydney Institute in a filmed for Youtube broadcast about the implications of the pandemic for political and economic life in the Australian states. Paul Kelly’s speech filmed on 6 May 2020, was followed by a discussion with Gerard Henderson on what Paul Kelly had said.

POLITICS AND THE PANDEMIC

PAUL KELLY

The Covid-19 pandemic is a unique event – there has been nothing like it in our lifetime. There is no automatic frame of reference for governments, medical professionals, economic decision-makers, businesses, banks, hospital administrators, media and public.

Many governments and leaders have been caught by surprise and found wanting. Uncertainty dominates – we don’t know if or when there will be a vaccine; if there will be a second wave as there was with the Spanish flu a century ago; how long and deep the economic downturn will become; what might emerge as the geo-strategic consequences. In a sense we are doing our best but flying blind, hostage to an enemy we struggle to combat with huge variations in the performances of individual nations.

Treasurer Josh Frydenberg has reminded us that in late February – just 10 weeks ago – the IMF was saying the coronavirus would detract only 0.1 percentage points from global growth that would be above 3 per cent this year. Now we confront the worst global downturn since the Great Depression. The speed of the contagion has left people scrambling. In this situation, judgments about politics are far more hazardous than usual.

Let me begin with four over-arching points.

First, the war analogies are appropriate but this is a different war – a war on home soil. The entire civilian population is the frontline. The strictures being applied at home are, in some ways, more onerous than in wartime.

Second, this is a national and an international crisis. It affects Australia and it affects our relationship with the world. Ultimate victory over the virus depends not just on its defeat at home but its defeat in much of the globe.

Third, the task is to meet two related crises – medical and economic – knowing that the medical strategy will determine the damage to the economy, jobs, investment and living standards. There can be no economic success without success on the medical front. So there are two tests for success.

Fourth, in the current phase of the virus with no vaccine the task is to manage society to contain the virus while restoring much of our economic, institutional and social life – but in a COVID safe way. That is a high risk project.

On the medical front, to this point Australia is extraordinarily successful. The virus has claimed more than a quarter of a million deaths worldwide. In Australia, there have been 96 deaths while in the United States there have been more than 71,000 deaths, greater than the total number of Americans killed in the entire period of the Vietnam War. In the United Kingdom there are nearly 30,000 deaths, in Canada, often compared with Australia, there are more than 4,000 deaths.

Adjusted for population the death toll in America is 46 times that of Australia, the UK is 96 times as great, Canada 20 times as large. We should not belittle our achievements. Director of Epidemiology at the Doherty Institute, Professor Jodie McVernon, a co-opted member of the medical panel advising the national cabinet, told me:

We have averted a catastrophe. You only have to look at New York, London and Spain. To claim we didn’t need to implement these measures is at best naïve and at worst malicious. I think in Australia we don’t appreciate what we have been spared. We have not lived in a situation where we’ve used ice rinks as make shift morgues or seen refrigerator trucks outside hospitals. We are not special. We are all human and the virus is what it is.

Our medical performance, on the evidence, is one of the best in the world. Three factors drove this – we started early; the politicians and medical advisers agreed on a strategy and followed it, unlike the situation in the US and UK; and we had a national cabinet as an over-arching decision-making body promoting consistent and usually consensus-based decisions – not all the time but much of the time.

The key steps were as follows: first, the 21 January decision by Chief Medical Officer, Brendan Murphy, to exercise his powers under the Biosecurity Act and declare a pandemic, a decision that alerted the government and engaged the Prime Minister, Scott Morrison. The second was the 1 February decision to impose the China travel ban, a decision criticised by China, at odds with the World Health Organisation and provoking alarm from the university and travel sectors. Britain and Canada did not follow Australia. Health Minister, Greg Hunt, told me: “That decision brought Australia at least a month while we were putting everything else in place” – ventilators and intensive care unit hospital capacity.

Third, on 15 March the national cabinet met for the first time, serviced by the Australian Health Protection Principals Committee, the chief medical officials from the Commonwealth and the States. Learning from his adverse experiences during the bushfires, Morrison was determined to achieve a functioning federation in fighting the virus – that meant acting on a single source of medical advice and having all political leaders supportive of the broad strategic direction. Given the bedlam in the US between President Trump and State Governors the wisdom of this approach has been constantly verified.

Australia decided on a middle strategy – a suppression strategy – it did not follow New Zealand on its elimination goal, nor did it follow Sweden in allowing much of normal life to continue and rely upon building significant public immunity.

The medical results show that Australia, in per capital terms, has been as successful as New Zealand while Sweden’s death rate is 70 times that of Australia. Sweden is no model for Australia in this crisis.

The three key figures in Australia’s medical response have been Morrison, Hunt and Murphy. Morrison’s performance as PM has been of a high order but not mistake free. The major criticism of Australia is that it took too long – after the China ban – to close the international borders. But overall Morrison has displayed sound judgment, strong leadership and a capacity to hold the country together around a form of co-operative politics, an unusual situation for Australia.

To this stage the national cabinet is a worthy innovation in governance. This assessment, however, is also tempered by some conspicuous failures, notably the management of the Ruby Princess cruise ship fiasco that was so important in spreading the virus.

Let me now move to the economic decisions. On 10 March, Morrison outlined the seven principles that would guide the government’s response. The economic response has seen the government operating in an emergency setting. It has taken a series of bold decisions quickly. This has been a rolling economic crisis where the situation on any Friday was different from the situation on the previous Monday.

The upshot has been three fiscal packages – a $17.6 bn economic support package; on 22 March the second support package totalling $66 bn called by Frydenberg the “Team Australia” moment; and then on 30 March the $130 bn wage subsidy named JobKeeper. This was a total fiscal spend of about $213 bn or 10 per cent of GDP. (The JobKeeper figure was later downgraded by $60 bn).

This was the largest and fastest fiscal emergency response since World War Two. Treasury estimated that without the response unemployment would have reached 15 per cent. It estimated that the unemployment level will top 10 per cent, but if this is the peak it will be below the 11 per cent recorded in the early 1990s recession.

The aim of JobKeeper was to keep businesses and employees formally connected. It was designed as a mega-hit, to show the public and markets the government was ready to take unprecedented action to save the economy and try to preserve a framework for recovery. Frydenberg revealed that stage three came when Treasury felt the economic restriction could see GDP fall 10-12 per cent in the June quarter. Critically, if Australia followed much of Europe – and it did not – and imposed an eight-week lockdown the adverse impact on GDP could reach 24 per cent in the June quarter. “This was the cliff we were standing on,” the Treasurer said. The government felt it was acting to deny a depression-type scenario. It came when the tougher social distancing policies were approved by the national cabinet thereby closing a significant section of the national economy.

A feature of the economic response has been co-ordination between the government and the Reserve Bank. On 19 March Governor, Philip Lowe, announced a support package. This saw the cash rate cut to 0.25 per cent. It included a $105 bn bank package to preserve liquidity and help business and households in what Lowe called a financial bridge to cover the economic chasm. The bank would engage in a bond buying program (to inject money into the economy) and provide a line of credit to the banks. Frydenberg said it revealed a collective effort to do “whatever it takes” to save the economy.

The economic response was highlighted by a number of features. It showed Morrison and Frydenberg as pragmatists, prepared to meet an emergency situation with radical interventionist measures. I believe their emergency spending was justified given the threatened scale of the downturn. It saw a trusting relationship between the Prime Minister and the Treasurer, between ministers and the Treasury under Steven Kennedy and between the Reserve Bank and the government after a lot of tension in 2019. It revealed the private banks willing to play a constructive role in the provision of finance in a project also designed to salvage their reputations.

It showed the Labor Party acting responsibly in the parliament and voting the measures. Politically, Labor had no viable option. It is significant however, that Labor wanted the government to spend a lot more, for instance, to extend JobKeeper to one million casual workers. Labor’s stance from the start was for a faster and bigger stimulus. The government negotiated successfully with the ACTU on aspects of the design, raising the possibility or false hope of further co-operation with the ACTU down the track. It is noteworthy that the government put limits on how far it would go in providing assistance. It refused to take equity in Virgin because it wanted to avoid bailing out individual companies.

Crisis often helps incumbents in political terms. A feature of COVID-19 has been the exceptional poll approval ratings accorded Morrison and the premiers. The national cabinet has given the premiers a profile they normally do not enjoy. The most recent Newspoll shows Morrison’s approval at 68-28 per cent, compared 10 weeks earlier with a deficit of 37-59 per cent, surely the most dramatic turnaround in Newspoll history on that measure. The parties are shown at 50-50, pretty much the previous election situation. In my view the polls understate the real Coalition position. Its underlying strength is being seen as the party more trusted on the economy and this element comes to the fore when people must vote in an election.

Federal Labor under the leadership of Anthony Albanese is worried about being marginalised. The operation of national cabinet with Labor and Liberal leaders, only accentuates the problem for federal Labor. Morrison currently leads Albanese on ‘better PM’ 56-28 per cent.

The situation will become far more challenging for the government as we enter what might be called the recovery phase – essentially running a COVID-safe style economy with all the contradiction this implies. The government’s measures are described as targeted and temporary. Many such as JobSeeker have a sunset provision. But withdrawing benefits will be hard. Labor and many interest groups will almost certainly attack what they will brand as a premature withdrawal of financial support.

The government’s main task, as Morrison keeps saying, is to ensure there is no “second wave.” Morrison said: “If you ease off too quickly, too early, then you end up making the situation even worse.” That means worse in both health and economic domains.

But Morrison and Frydenberg are extremely anxious to begin the opening up and economic restoration with Frydenberg saying that every week the shutdown continues means a loss of $4 bn in economic activity. This is designed to pressure everybody to make the shift. National cabinet next Friday is expected to define the framework for the easing of restrictions but individual premiers will have the discretion. Re-opening of schools is fundamental to re-opening the economy and differences on this issue are deep-seated.

On the other side of the virus Australia faces a new world. First, we will be left with a hefty debt. Morrison and Frydenberg have signalled it will be tackled not by spending cuts but economic growth. This is essentially the strategy Morrison followed as Treasurer when he was tackling a much smaller deficit and debt. In future, the Coalition will live with permanently large budget deficits in contrast with its fixation since 2013 about returning to budget surplus. It will be a new environment for the Liberal Party.

Second, there will be significant pressure to increase taxes given the problem in financing the spending. The Left will say “increase taxes”. Morrison and Frydenberg will say “no” but some tax increases may be forthcoming. Tax policy will remain front and centre in budgetary and reform terms.  The spending demands on government will be substantial given the need for a strong post-pandemic health budget (getting ready for the next shock), welfare demands from higher unemployment levels, education, training and skill demands from a re-shaped workforce, calls for more defence spending – and this will be set against possibly weaker revenues.

Third, there will be political differences between the government and Labor over the recovery phase. Labor will probably back a bigger role for government while the Morrison-Frydenberg message is that the private sector must be at the heart of recovery. Labor can be expected to invoke its historic legacy – managing reconstruction after World War Two to remind the public of its credentials. Labor may also be assisted because the entire COVID message – in health and economic terms – is the need for strong and interventionist government. Many observers are arguing that big government is coming back (but did it ever leave?).

As time advances Morrison may come under assault from the populist Right. It is already making the case, namely, that Morrison over-reacted, that he didn’t need to shutdown the economy, that he has plunged the budget into record deficit and debt that that it was all unnecessary. I doubt that will get traction but the populist Right media will cling to the narrative.

We can expect a battle of ideas and policy differences between the government and Labor over the economic reform agenda to underpin recovery. This will shape the respective agendas for the next election. High unemployment and a hit to the economy should create the objective conditions for Labor to win the next election. If Labor cannot win in recession when can it win? But Morrison will be formidable as his 2019 election victory demonstrated and, if the election is about the economy and strong government, then Morrison will be competitive, perhaps more than competitive

POLITICS AND THE PANDEMIC – DISCUSSION – PAUL KELLY & GERARD HENDERSON

Gerard Henderson: Paul thanks for a first-class analysis. Talking about the Prime Minister, as you were in your speech, you were praise worthy of his efforts. But it seems it’s not so long ago that sections of the media were referring to “Scotty from marketing”. But Scotty from marketing seems to have gone into another business. How do you see that developing?

Paul Kelly: Much of the media has underestimated Scott Morrison. One of the extraordinary things they say about him is that we don’t know a lot about the Prime Minister. Well, the point to make about Scott Morrison is he has served as Immigration minister, a Social Security minister and then Treasurer for three years. The experience in each of those portfolios has been fundamental to the way he operates as prime minister. This is a really rich data source on what Morrison is actually like. His performance so far over the course of the past ten weeks, in the course of this crisis, indicates that there’s a lot more to it than simply marketing skills. I’ve argued that I think the performance of the government, in recent times, in terms of the magnitude of the decisions and the speed of decisions, has been the most significant period of decision-making by a national government since World War II.

Gerard Henderson: So going back to the Prime Minister, as you pointed out in your talk, we closed the border with China well ahead of advice from the World Health Organisation and that caused certain problems. Since then, there have been other issues with the Australia-China relationship. I know you’ve written about this but how do you see this long-term Australian-China relationship? And, then, China’s place in the world presumably after the pandemic but also during the pandemic?

Paul Kelly: The pandemic will accentuate and deepen the polarisation about China. It’s pretty clear that relations between the United States and China will deteriorate further. Nations are increasingly going to be driven into a bipolar world with the Chinese model on the one hand and the American model on the other hand.

This virus originated in China. So China has a responsibility in terms of the global consequences. It is important that there be an inquiry but there cannot be an effective inquiry unless China co-operates. So there is a conundrum as well. We need to bear in mind that even before we had the eruption of the virus, we had a very assertive China over the last several years, in terms of the South China Sea, its military agenda, its defence budget, its assertion of soft power and it’s presenting itself to many countries in the developing world as a superior model to Western democracy.

This is a comprehensive competition between the United States and China in terms of models, in terms of governance, trade, economy, technology and strategy. And Australia will be increasingly caught up in this competition.

Gerard Henderson: In relation to that, as you were saying, there were tensions in the relationship before the pandemic. But they’ve greatly increased, as you know, with this very extraordinary attack by China’s ambassador in Canberra against the government. It seems not only in Australia, but also elsewhere, that China’s representatives in the world have become very aggressive. In a sense, they’re in denial. But they’re more than in denial. They’re also attacking. Now, that may just be something that they’re doing because they want to do it. Some have suggested that they’re trying to cover themselves with their own population. But it may just be a continuation of what was going on before the pandemic. How do you see that?

Paul Kelly: There’s no doubt that China’s diplomacy around the world has been conspicuously aggressive. We’ve seen that play out in Australia with the comments of the Chinese ambassador in recent times. This is extremely counterproductive for China and the collective impact of the virus and of China’s diplomacy will have a profound effect on Australian public opinion. Australians don’t like to be bullied, and if they think there is a major power attempting to bully them – and that’s how it looks at the moment – this will not play out well with the Australian public.

Now, perhaps China doesn’t care about that, but the Australian government will certainly have to take into account public opinion in terms of its own management of relations with China. The government is still attempting to implement the Howard model here. And the Howard model is attempting to maintain effective relations with both America and China. Frankly, that, I think, is what we have to do. It’s getting more difficult, there’s no doubt about that, given China’s more assertive position and given Donald Trump in the White House. But we must attempt to do this. That means we’ve got to try and cool the climate. The Australian government, and essentially I think this is Morrison’s position, needs to treat China in a cool, realistic but tough minded way.

Gerard Henderson: As you know, we are dependent on China for our economic growth to some extent. But also, as you also know, the fact that China is dependent on Australia is often overlooked. Sometimes this is not expressed as fully as it might be by political leadership, sometimes it is not reflected in commentary. But how do you get out that message that a lot of China’s growth in recent years has come out of Australia’s mineral exports and without those exports coming from a high quality supplier in a orderly legal system that China’s growth wouldn’t have been as easy as it has been? So how do we get that message out?

Paul Kelly: This is a very important message and it reflects the mutually beneficial nature of the trade and economic relationship between Australia and China. In the current environment, that can often be overlooked because there is a lot of emotionalism in the public debate in this country about China. That’s not a good thing. We need to get rid of the emotionalism. We need to get rid of the inflamed rhetoric, and, of course, a lot of inflamed rhetoric does come from the Chinese side. We need to try and settle things down and have a more realistic debate. The truth here is, despite what China says, I don’t think China wants fundamental change to the economic or trade partnership. Why would they? It’s in China’s interests. So, we need to look at the reality which sits underneath a lot of the rhetoric and try to focus a lot more on the reality. And not just the reality, but the opportunities which will continue to exist economically as we see China continue to grow, but maybe not grow quite as strongly in the future as it has in the past.

There’s still going to be enormous economic opportunities for China in terms of the economic partnership between both countries. And we need to keep that up there in lights as well as be alert to the strategic rivalry.

Gerard Henderson: So does that require any change in Australia’s relationship with the United States?

Paul Kelly: Well, believe we’ve got to continue to operate within the traditional framework with America. But changes will be needed. When I talk about the traditional framework, I’m talking about the alliance relationship with the United States, the  long history, the momentum, the cordial and trusted relationship between the two countries. So that goes on. And the point to make about that is that it transcends individual politicians sitting in Parliament House and sitting in the White House.

The strength of the Australian-American alliance does transcend individual politicians. Having said that, things are changing. Trump represents a fundamental change, not just in terms of Donald Trump, but in terms of American politics and the sort of presidents we see after Trump. Trump has talked about putting America first. He wants allies to do a lot more. He’s prepared to take trade retaliation against China. But there is a question mark about the extent to which he is prepared to really challenge China strategically. So the takeout from all of this is that we need to do everything we can to preserve the strategic relationship with the United States.

But we have to do more. We have to become more self-reliant within the alliance. We have to become a country which is more resilient, which spends more than two per cent of GDP on defence. We’ve got to take the defence budget up to 2.5 per cent of GDP if we can. We’ve got to try and make that bipartisan. And there’s no point talking about a more dangerous world in geostrategic terms and talking about what China is doing if we’re not prepared to back up these comments and back up this analysis with hard-headed headed decisions when it comes to national resilience and national defence.

Gerard Henderson: When I hear you say that and when I heard you talk about, on the conservative side of politics, a demand for a greater sense of nationalism in the economy, it reminded me a bit of what the late Bob Santamaria used to say and what the late Frank Knopfelmacheror and other anti-communists used to say. They used say we want to be allies with the United States. But, we can’t really trust them. They’ve got their own interests. We’ve got our interests. We should increase our defence expenditure and we should be more self-sufficient as an economy and we should be more protected. So this is the return of the sort of 1960s and 1970s anti-communist, do you think?

Paul Kelly: Well you really know me there Gerard, suggesting there might be a parallel between what I’m saying now and what Bob Santamaria used to say.

Gerard Henderson: It is not just you, it’s also Hugh White. Hugh White’s saying we’ve got to spend more on defence.

Paul Kelly: Well, look, I used to always enjoy watching Santamaria on Point of View. It’s fair to say, in those days, I tended to disagree with him a lot of the time, although not all the time. But the reality is that there was a fundamental truth in what Santamaria said. You could disagree with him about the degree to which he wanted more money spent on defence. But Santamaria’s argument was always an argument based on the strategic risks and dangers that Australia faced. And let’s be very clear, given the state of the world and the state of the region and the rise of China, such risks are very apparent today. And there’s no point in people simply talking about risks without being prepared to engage in policy prescriptions to address this. It will be a very difficult issue for the Morrisonon government, given that the budget will be in significant deficit, and we’ll have a lot of debt. And there are going to be a lot of education and welfare demands on spending. But we can’t overlook the argument for greater national resilience.

Gerard Henderson: Coming back from China as a nation to Australia as a nation, its relationship with China. Something like ten per cent of Australians have some sort of ethnic link with China, some very direct. As you know, the Chinese Australian community is divided. Some support the government in Beijing. Many don’t support the government in Beijing. How do you think this is going to be handled at the time of what you spoke about it – an increasing resentment within the Australian community to the government in China because of the way it’s handled the pandemic?

Paul Kelly: Well, this is going to be a challenging issue for Australia. And I note here that Morrison, when he’s talking about China, draws the distinction between what the attitude of Australia towards the communist government is in Beijing, on the one hand, and then the attitude to Chinese Australians on the other. He’s been at pains to praise the performance and outlook of Chinese Australians during the course of the virus in terms of internal behaviour and so on, while taking measures to protect the country against the virus.

We’ve got to ensure that attitudes to China don’t lead to more racial and racist incidents in this country. That’s something we’ve got to be vigilant about. Clearly, there’s a great degree of tolerance in this country. But on the margins, every now and again, you see some sort of breakout and we’ve got to be careful about that. Of course, we’ve got a fundamental problem here with Beijing, given its attitude. Its attitude is, of course, that all Chinese people anywhere in the world have got an allegiance to China and to the Chinese government. And this is a real point of difficulty and conflict. There’s no doubt that Australia’s security and defence organisations have focused on this in recent times, looking at the extent of Chinese penetration of this country. And, to a certain extent, that penetration of Australia is designed to exploit the Chinese Australian community.

Gerard Henderson: Which is much deeper than the attempt by the old Soviet Union to do it because that turned on a Communist Party and fellow travellers of the Communist Party. Whereas this Chinese influence extends through universities and to some extent schools with a nation trying to maintain the view that the loyalty of Australian citizens is primarily in the first loyalty of that nation. So, it’s a more serious problem than Soviet communism was decades ago.

International students are obviously affected by this ban on travel and the universities have been affected. Many of those international students are Chinese students. We don’t quite know to what extent that will continue, partly because we don’t know to what extent the Chinese government might try to block it or to what extent that China, being not as wealthy as it was, the parents of these students can’t afford it. So where do the universities sit in all this?

Paul Kelly: That’s a difficult question to assess at the moment for the reasons that you’ve identified. We know that the universities are extremely financially dependent on international students, which is now a very significant export industry for Australia. There has been a price to pay for this in terms of the quality of education at universities. This is an issue that will get increasing attention. So we’ll have to wait and see. There will be an appraisal here of university policy and university strategies off the back of the crisis, just as we’re going to see a reappraisal in so many different parts of our economy and society.

Gerard Henderson: So before we get back to that point, let’s go back to the national cabinet. As you know, in Australia, we never had a national government in the first war or the second war, partly because in the second war the Labor Party was opposed to it. It wasn’t really raised in the first war. Now we’ve got a national cabinet which is not really a cabinet, but consists of all the leaders of the various cabinets in the various governments. And you sort of praised that. But how do you think that’s working? Is it capable of working? Some of our people have asked us if it will take the place of COAG? What’s your view on that? The COAG being the Commonwealth and state governments meeting together.

Paul Kelly: Well, it’s certainly the ambition of the Prime Minister that the national cabinet continue to exist. While Morison hasn’t said this, he would like to make it permanent. Whether that’s possible or not, we don’t know. But I think his ambition would be to have the national cabinet replace COAG.

Now, there might be a reasonably good chance of this happening because one of the takeouts from the national cabinet so far is that it seems to be very much in the interests of the premiers. The premiers like it. The premiers are more important as a result of national cabinet than they were before. They’ve got a much higher profile. They are engaged in national decision making in a way they weren’t before. And to a certain extent, the national cabinet assists incumbents. The real challenge is how does it function beyond this particular crisis and whether it can endure and be seen to be beneficial or constructive after the crisis. But an attempt will be made to institutionalise the national cabinet and keep it going.

Gerard Henderson: So to what extent is it different? Because at the end of the COAG meeting they all go into Parliament House and the premiers line up with the Prime Minister in the middle and the senior ones next to him and the less senior ones in terms of longevity as premier on the outside. So, what’s the difference between what’s happening now and a normal COAG meeting which ends up in a joint press conference?

Paul Kelly: Well, the difference is that the decision making is fundamentally more significant in the national cabinet. Over the last several years, COAG and its outcomes tended to be fairly bureaucratic. It would meet a couple of times a year. It would take one off decisions of somewhat dubious implementation capacity. The national cabinet is focused on the fundamental and high profile decisions facing the country and it’s having a say in those decisions.

You say, correctly, that it’s not a cabinet the way we understand a cabinet to be. And it can’t be like that. It’s a different sort of cabinet. So it’s taking different sorts of decision – if you like, framework decisions, the implementation of which and timing of which is often implemented by individual premiers in their own state according to their own discretion. Nonetheless, there is a framework and there is a consistency there. The fascinating thing will be how the national cabinet functions in the recovery phase and the extent to which they can actually take economic decisions, broad-based economic decisions which relate to the country in terms of recovery. That’s going to be very tricky and very difficult. But it will be fascinating to watch.

Gerard Henderson: But as of today, as you pointed out in your speech, on the issue which the government regards as the crucial issue – in terms of economic recovery of getting the skills back – you’ve got one significant, well two, holdouts – the Victorian Premier and the ACT in Canberra, the ACT Chief Minister. They’re significant. They’re both Labor leaders. They’re significant holdouts. The argument is to what extent are they being motivated by the teacher unions and the principals unions. That is one area where there’s a kind of glossed over unity. Underneath it, there actually disunity to a greater or lesser extent. Some schools are pretty well back, some are coming back slowly and then you’ve got the holdouts of Victoria and the Australian Capital Territory.

Paul Kelly: Well this demonstrates the point again that it’s not a proper functioning cabinet. You can’t get away from the politics. This is a cabinet which contains the Liberal and Labor leaders. It’s a cabinet in which there are very significant differences of outlook and this has come to the fore in relation to schools.

A couple of points to make here. It’s been fascinating to see how hard Morrison has pushed on the schools issue. He wants those schools back. He is completely convinced of the medical advice and he understands that the economic dividends from getting schools back are really significant. On the other hand you’ve had some of the Labor premiers, in particular Dan Andrews in Victoria, with a different view about this, a different view about easing the economic shutdown and clearly a very different view about schools. One of the underreported aspects about all this has been the role of the teachers unions and the teachers federations. I’m surprised we haven’t seen greater media analysis looking at the exact nature of the influence here, and the channels of influence. It is extraordinary that the Teachers Federation in Victoria has been essentially opposed to reopening schools. And they talk a lot about equity. Well we know who’s being hurt. The students being hurt are those from a lower socioeconomic background. I do find it surprising there has not been a greater emphasis on this question.

Gerard Henderson: Going back on that point. We’re getting close to the end now. As you make the point, the teachers are holding out in the government schools. But they are teachers who are at home on full salaries paid by the taxpayer. In some of your earlier comments, you talk about post-war reconstruction after the Second World War but also the Great Depression. As you know, in the Great Depression everyone took a cut. We had a national wager system then. But wages were reduced across the board. Everyone took a cut. There was deflation to some extent so the cut might not have been as great as it seemed but everyone took a cut.

This time, we seem to have a divide between the public and private sectors, in a sense for good reasons, where the public sector has closed down industries. But the public sector is, effectively, in permanent and secure employment without a wage cut while the people who are copping it are essentially in the private sector or else their parents are. As you pointed out, the ones who are copping it are also the lower socioeconomic parents, parents with children with disabilities, parents who are not so well educated that they can teach their own children. So how do you see us overcoming this apparent public sector private sector divide?

Paul Kelly: Well again I think this is a difficult issue. I’m a little bit surprised that it hasn’t become more of an issue, after say ten weeks, than what it is. But if in fact the economic tribulations last for a considerable period of time, and they might, then I think this will become a more important source of tension. It’s very difficult for the Morrison government because, if we look at the national cabinet, there is no way you could get a decision from the national cabinet to restrain or reduce or cut back public sector wages because not all the premiers would agree with that when it comes to the state public service. And so you’ve got the state public service, and the Commonwealth public service. Any such decisions would have a lot of political consequences in terms of public sector employees and how they felt and how they responded to that. Nonetheless, it’s certainly true that the burden at the moment in terms of unemployment, in terms of reduced income, in terms of dire impacts on living standards, is being overwhelmingly carried by the private sector. So there is a question here of equity. As we go along over the coming months, it may well be that more and more tensions arise in terms of this difference between the public and private sector on the equity front. We usually have the Labor Party making equity arguments. But what we might see in this particular case is the conservative side of politics starting to make these equity arguments.

Gerard Henderson: It’s equity as you pointed out. But it’s equity plus because, as you know, action has been taken and it’s very often affected the most entrepreneurial section of the Australian economy, people who want to set up their own businesses which might have grown into big businesses. In any event, they’re employing people at this stage. Then you’ve got this situation where people, say in the Department of infrastructure, probably writing notes to one another while people in private industry are employing people and their businesses have had to close down. So it’s a concern about the entrepreneurial section of the Australian society. If it’s crushed it will take a long time to come back with deleterious employment outcomes.

Paul Kelly: Well this point is absolutely critical. It’s important to note that the Morrison government keeps saying it wants the recovery to be led by business not government. That’s easier said than done and this may end up being a very significant point of difference between the government and Labor. What will Labor’s strategy be for recovery? To what extent will Labor be saying no, we would like to see recovery being led by both government and business. I’m not certain what Labor will decide but I just put that up there as a possible area of difference and dispute.

But this goes to the question then of the recovery policies. Morrison and Frydenberg want business to lead the recovery. That means they’ve got to put in place the policies that enable that to happen, the incentives on the tax side, on the industrial relations side in terms of workplace training. So the question is whether they can put those policies in place, can they get them up, can they sell them, can they legislate them and to what extent will we see then a fundamental difference in policy terms, not just strategic terms, between the government and Labor. The idea of a business led recovery is the natural and right thing for the Liberal Party to say. But actually implementing this could prove to be a pretty challenging project.

Gerard Henderson: One final question from one of our members who said look she just loves the relative harmony between politicians at this stage and she wonders whether this will continue. Which I guess, to reframe the question, is when we are we are able to go back to holding hands and hugging, for those who want to do this? Will all the politicians be holding hands and hugging or will we go back to the relative conflict in Australian society? It’s not as dramatic as other places but will we go back to a political conflict soon or ever?

Paul Kelly: In theory there are three options here, Gerard. One is whether we’ll see, if you like, the more consensus based operations at the moment continue, the sort of consensus atmosphere that surrounds the national cabinet. I don’t think that will continue as we get to the recovery phase. Another option is to say we will go back to the poisonous political polarisation that we’ve seen over the course of the past decade which has made it incredibly difficult to get up national interest reform based policies. And this has been very significant in the diminished quality of public policy in Australia. There’s been far too much political conflict and it has been damaging, it’s been poisonous and it has been very hard to get up reform. The second option is, will we go back to that? There is perhaps a compromise middle position. Perhaps I’m being too optimistic about this but the middle position might be that we return to competitive politics with a lot of rivalry in the system. But, nonetheless, given the challenges facing the country, such as a very high level of unemployment, we do see more cooperation and more bipartisanship at an incremental level than what we’ve seen for the past decade. So, in general terms, I see those as being the three options and one can take one’s pick and we’ll have to see what happens.

Gerard Henderson: Well Paul at a time of pandemic it’s always good to end on an optimistic note. So let’s end there and thanks for a great presentation today and we’ll keep reading you in the Australian of a weekday and the weekend Australian on Saturday.

Paul Kelly: Thanks it’s been great to be at The Sydney Institute again.

Gerard Henderson: Thanks Paul.