The best way for the nation to recover from this once-in-a-century economic crisis according to Philip Lowe, is for governments to embrace the Henry tax review and adopt overdue reforms to underwrite a business-led revival.
The RBA forecasts the economy will contract a massive 10 per cent in the first half of the year and hours worked to drop 20 per cent. The unemployment rate will surge to about 10 per cent.
In the past, Morrison has been frustrated by Lowe’s public niggling, but now he will use it as political leverage.
Labour market reforms and cutting red tape are high on the government’s agenda.
Paying for meaningful business tax breaks to stimulate investment will be fiscally challenging because government debt will approach $1 trillion.
Disappointing tax economists, Morrison and Josh Frydenberg have already ruled out broadening or increasing the 10 per cent GST to help pay for other desperately needed tax reductions.
At a state level, NSW Treasurer Dominic Perrottet wants to find a way to axe stamp duty on property purchases and shift towards an annual land tax on real estate owners.
The enormous benefits would include people moving closer to work and new jobs, less congestion, home upsizing by growing families, downsizing by older people and less volatile revenue streams for states.
After the immediate and extraordinary emergency economic support by the RBA, federal and state governments and commercial banks, Lowe sees structural economic reform as imperative.
“There is an opportunity to build on the cooperative spirit that is now serving us so well to push forward with reforms that would move us out of the shadows that are going to be cast by the crisis,” Lowe said on Tuesday.
“A strong focus on making Australia a great place for businesses to expand, invest, innovate and hire people is the best way of extending the recovery into a new period of strong and sustainable growth and rising living standards for all Australians and I hope we’re up to that task.”
Nevertheless, over the next few months, he sees “very difficult” times ahead for households and businesses due to coronavirus containment measures shutting down parts of the economy.
To maintain the very high living standards Australians have become accustomed to, our leaders will need to take the public on a persuasive reform journey like Bob Hawke, Paul Keating, John Howard and Peter Costello.
The 125 recommendations in former Treasury secretary Ken Henry’s 2010 landmark tax review are an obvious starting point.
The current arcane tax system is incapable of efficiently and fairly raising the revenue required for future years.
Generations of future workers alone can’t repay the looming $1 trillion debt incurred by today’s beneficiaries.
A collaborative and broad-based reform effort after the coronavirus crisis is the economic medicine the country needs.