Even before the COVID-19 pandemic struck, the Australian economy was under-performing its potential and in need of reinvigoration. Economic growth in per capita terms had slowed to a crawl and business investment and productivity growth were depressed. Policy changes that were previously desirable have now been rendered crucial by the pandemic.
The shock to the economic system since March has been so profound that it has not only led to the deepest recession since the Second World War but will also do long-lasting damage to employment, unemployment and productive capacity. The recovery will inevitably be measured in years, but the right policies can speed it up. Emergency support measures, fiscal stimulus and increased government borrowing have their limits and at most can only help in the short-term.
The emphasis of economic policy will need to transition to structural reforms such as industrial relations, deregulation and tax reform. Properly designed, these will support job creation in the short-term while simultaneously contributing to higher productivity growth in the longer term. Short-term results aside, a comprehensive reform agenda offers the best prospects for a sustained recovery that lifts the economy back to potential in the medium term and enhances that potential in the longer term.