FRIDAY, 3 APRIL 2020
SUBJECTS: The impact of coronavirus on Australian airlines; competition; US unemployment figures; Australian unemployment figures; stimulus measures and the wage subsidy package; government debt.
TOM CONNELL, HOST: My next guest on the program is Andrew Leigh, a shadow minister for the Labor party. Andrew, thanks very much for your time. Why don’t we start on Virgin Australia, I know you’ve had some comments to make on this. Labor’s been saying that the government might be acting in haste here, denying the assistance that Virgin is after, which might be a $1.4 billion or so loan. What is Labor saying exactly, that should be considered or that should just be given to Virgin to make sure they stay?
ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY AND CHARITIES: Tom, the bottom line is Australia needs two full service airlines. Much as we love the budget carriers, it's important that there is competition in the business end of the market. No market is well served by a monopoly. We saw from 2001 to 2008, after Ansett exited the market, the impact that that had on the choice of routes and on the fares themselves. So it's vital that the Government recognises that consumers are well served by competition. Whether that's done through an equity stake or through a loan - I'm actually pretty relaxed about that, Tom. But the Government should be engaging constructively. You know, they seem to be behaving towards Virgin no more constructively they behaved towards Holden when they goaded them to leave the country. This isn't a sensible approach for Australian flyers.
CONNELL: Well, in terms of what we actually know from what they do, the Government says it is in discussions. It’s just been reports that it won’t hand out this loan. Shouldn’t the major shareholders, which are overseas airlines, be the first port of call to stump up this money? Particularly if they have it, they should be paying it, right?
LEIGH: The government has supported low interest loans for a range of businesses, and it's done that in the national interest. This is a time in which we need to ensure that Australia is on a strong footing, not just immediately but also into the future. Why should we allow coronavirus to destroy an airline, and then have Australians paying more and having fewer routes to choose from? We don't want to be in a situation where we end up with a monopoly. And Tom, this isn't just a situation affecting airlines. We know that in past downturns there have sometimes been too many mergers, too many instances of big, cash-rich firms snapping up rivals and leaving consumers with less choice afterwards. We’ve got to make sure that doesn't happen this time around.
CONNELL: The Government insisting there certainly will be a second major airline, so I suppose it’s a watch this space for now-
LEIGH: Yes, but is it a full service airline, Tom?
CONNELL: Yeah, I understand that, and if it’s Ryan Air I think there would be concerns.
LEIGH: That's the point exactly.
CONNELL: So, watch this space at this stage. I do understand that. I want to get your thoughts as an economist on the US. 10 million people joining the unemployment queue in the past two weeks, a staggering figure. Does this highlight that even in Australia if we avoid the worst of this and the direct impact on our own health systems and so on, it’s going to be a really slow rebuild, much worse than the GFC?
LEIGH: Absolutely. What we're seeing from the US is job loss in the past month equivalent to the job gains of the previous five years. The number of people that have joined the US unemployment queues over the last month that is equal to the workforce of Florida. So, this is monumental. The forecasters had predicted an increase in US unemployment this week about half of what we saw, and it's not going to just affect the US economically. I think it will have a flow-on impact on geopolitics, onto the US’s standing in the world. This is really seismic stuff. We’re yet to see the Australian figures, but some work out of CEDA suggests that there's been a massive spike in searches for terms like Newstart over recent weeks, and so our figures could be pretty bad as well.
CONNELL: We are bracing for that. Again, perhaps more as an economist than a Labor MP – I understand you probably can’t take the hat off entirely – what do you make of the Government’s $130 billion plan? This went, I think it’s fair to say, broader than most people thought and included groups people perhaps thought wouldn’t be included as well – even New Zealand citizens, for example. This seems to be going a fair way to ensuring Australians, at least for the next few months, they will still have at least something approaching a liveable wage?
LEIGH: Tom, one metric economists use is to simply look at the size of the package relative to national income. The first package was around 1 per cent of national income. The second package brought it up to 3 per cent. The third package brought it closer to 10 per cent, and that's in the ballpark of what you're seeing across the advanced world. Labor pushed very hard for the comprehensive wage subsidy program, and what we've now got looks much more like what other advanced countries are doing. But there is going to have to be more to be done, and we'd encourage the government to act quickly on that. Once a business goes insolvent, once someone severs their relationship to their employer, it's really hard to rebuild that. And Tom, there's no reason why good businesses should go to the wall, no reason why effective employees should lose their jobs, because of a virus for which we'll have a vaccine in a year to 18 months.
CONNELL: Do you have, just finally, do you have a figure in mind of who much debt we can carry at the end of this? In six months if there’s still not much of a path forward, how many more schemes of this size – it’s obviously not endless – how many more can the government roll out?
LEIGH: It’s about the speed and the effectiveness of the package, as well as the total size. It's really vital that we do what we can to hold on to those jobs, and to ensure that the recovery is a speedy as it can be. If we don't spend now, we get that sort of seismic damage and that means that the recovery is slower and paying back the debt becomes slower as well.
CONNELL: Yeah, I understand that, and there’s two sides of this. But is there a debt that you would see as not sustainable as a percentage of GDP, that we shouldn’t go past?
LEIGH: I wouldn't have a bright line, but I certainly am aware that debt is rising fast under this Government. So, before coronavirus, net debt was twice what the government came into office with in 2013. By the end of the crisis, it could be three times what the Government inherited when it took office. So, it will be important that there’s a plan to pay down the debt, and that can't simply be the Government pulling out the 2014 Budget and all of the horror cuts to pensions and health that was in that budget. It has to be an equitable sharing of the burden as we look to move into surplus and pay down debt.
CONNELL: Alright, well that will be a conversation had in earnest at a later time. Andrew, appreciate your time.
LEIGH: Thanks, Tom.
Authorised by Paul Erickson, ALP, Canberra.