How to pay for the rescue

I was asked by a journalist about the long-term fiscal effects of the government response to the crisis. Here’s what I said

 In simple accounting terms the cost of the intervention so far can mostly be offset simply by cancelling the Stage 3 tax cuts legislated in advance for 2024-25 (this also happened when the Keating Labor government legislated for future tax cuts in the 1990s). These are projected to cost $95 billion over the five years to 2029-30
so the saving would easily offset the crisis intervention over 10 years.

That’s assuming that the crisis ends quickly and everything returns to the way it was before. I think we will end up with a substantially larger role for government, and therefore a permanent increase in the public sector share of national income, which means higher taxes.

25 thoughts on “How to pay for the rescue

  1. That, John. is baloney!!! The answer to that question “How do you pay for it ? is simple. For a monetary sovereign government, the RBA will pay “whatever the federal government authorises” for as long as there are resources for sale in the nation in $A. PAYG. Federal Taxes pay nothing . They just take spending power away from the economy and a few other reasons.

  2. Yes, read the tax cuts might be on hold some where else today also.

    John Doyle, first things first, we are all in this together.

  3. Somebody should do a cost benefit analysis on this. If the budget cost is $400 billion, how much is that per life?

    And compare with costs of the ‘do nothing’ scenario.

    And then including all costs not just the direct budgetary ones.

  4. Re Ikon’s “(9) A Commonwealth superannuation, health, property and general scheme for all Australians” at;
    https://johnquiggin.com/2020/03/30/what-should-the-post-coronavirus-economy-look-like/#comment-222047

    “We could give the money back, slowly

    “The best way would be to get rid of compulsory superannuation, give all the money back to account holders (slowly to avoid too much inflation), mandate a 9.5% pay rise in its place and redirect the tens of billions of dollars we currently spend on superannuation tax concessions toward rent assistance, a higher Newstart allowance and a higher pension.

    “With retired renters better looked after, a moderate (say 20%) increase in the pension, and continued indexation of the pension to wages, no retired Australian would be living in poverty.

    “It’d be sustainable so long as we ensured sufficient worker productivity, primarily through full employment, appropriate infrastructure investment and well-supported education, training and research.

    “There, problem solved.

    https://theconversation.com/the-coronavirus-response-calls-into-question-the-future-of-super-133906

  5. Historyintime:

    Somebody should do a cost benefit analysis on this. If the budget cost is $400 billion, how much is that per life?

    How would such a cost benefit analysis constitute a productive use of resources?

  6. It won’t take much of my time to do a back-of-the-envelope analysis. Assuming 80 per cent of the population gets infected in the absence of restrictions, and the fatality rate is 1 per cent, that’s 200 000 preventable deaths in the do-nothing scenario. So, the cost is $2 million per life saved. Policy interventions are treated as passing the benefit-cost test in Australia if the cost is less than $4 million per life saved. Feel free to replace my parameters with yours.

  7. In the absence of restrictions, the healthcare system would collapse, which could send the fatality rate significantly above 1% and also mean hundreds of additional non-coronavirus deaths. It would also so severely traumatise healthcare workers that many of them would never work again.

  8. To answer you Hugo, some form benefit cost analysis underlies all choices in public policy in one way or another. Generally it’s an opaque political process based on parameters the public is not aware of.

    Surely it is better that there be open data and discussion, even of very difficult topics. Otherwise the party politicians, those with the money to set the public agenda, and those with vested interests win by framing the debate in their favour.

  9. Gee, a minerals resource tax and a carbon pollution tax might help pay for the government’s “spendthrift” ways. Bring it on.

  10. OK so according to Michael Blakely, the current response saves 90,000 lives. Call it 100,000 lives.

    The budget cost is $400 billion but that is just the Federal budget. Add in the States and call it a total of $500 billion.

    So $5 million per life.

  11. History in time, Why do you divide that overall budget by 1ßß,000? That allows you to come up with a figure of 5 mil. per life. But the 500 bil. figure (and there is no need to add the state budgets because they are not sovereign entities all of their money comes either directly or indirectly from the federal government*) is the overall budget. That budget does not just benifit those who lives are saved. It benifits all Australians. In fact you could even say that it saves the lives of all Australians. That budget pays for the construction of the infrastructure that now all Australians depend upon.
    My gripe with the whole fiat currency system is not that we are cheating future generations by running high deficits. My gripe with the fiat currency system is that it has weaponized currency. Weaponized currency allows people in some countties to benifit from their currencies at the expense of people in other countries. It creates a competely unartisitc distribution of natural resources internationally. That is a statement that scietifically no one can argue with.

  12. The figure of 100,000 is from Michael Blakey. He said that there would now be about 30,000 deaths or 25% of what their would have been. This implies the current measures will save 90,000 lives.

    I think you have to include State and local government spending unless it is directly part of the Federal response. States are definitely making independent spending..

    However, I’d accept the view that if the virus was let run there would obviously be lots of health spending and other costs, and they should probably be deducted from the $500 billion to get a net figure,

    Someone has to think the unthinkable. Better to do it now while events can be influenced, rather than afterwards. We don’t want total lockdown to be the COVID19 equivalent of the wrong monetary response in the Great Depression.

    Or is it just too distasteful to value human life.

  13. History in time,
    I do not know what the response to cov 19 costs in Australia. But when I googled the federal budget for Australia for 2019-2020 I came up with 488 billion. Threfore it is my understanding that if someone is using 500 billion as a figure they are speaking of the entire revised federal budget. If 500 billion extra is going to be given to the medical industry in Australia that would fit with the Naomi Klein view of the world which is usually quite accurate.

  14. history in time once again,
    You are on to something, kind of. If a person were to propose spending x amounts of dollars to save y amount of lives from the coronavirus one might be able to say that for that kind of money one could save 2y or even 10y amount of lives that would normally die of some other factor.
    Such an arguement might be hard to make in Italy. But in China or Singapore it would probably be easy to make a case that some other cause kills way more people. I imagine that with the population China has at least 30,000 people die every day even when not one dies of coronavirus. In the USA this figure is 8200 deaths per day on average. In Italy it is more than 2000 deaths a day in the best of times. In the world 150,000 people die everyday. 65000 people have died since the coronavirus broke out more than 3 months ago and if the figures can be believed, which if course they can’t, no doubt 62,000 of those deaths were among victims who were living on borrowed time anyways.

  15. On the face of it we are paying for the COVID-19 rescue with lives, real assets, resources and (seemingly) money. Lives are real. Real assets are real. Resources are real. Money is NOT REAL. There really is no argument that the most valuable items we possess are our own and each others’ lives. Then real assets and resources count as they can be used to save lives, enhance lives and also be used for other ends. Money is of no REAL account. Money is a notional thing, a made-up thing, a fiction, a make-believe.

    We are paying with lives, real assets and resources. Herd immunity is purchased at the cost of some lives; a proportion of those infected. That is the only currency available to purchase herd immunity until if and when a vaccine is developed. We can note here that the real world, as in all cases, determines the real “currency” with which we can purchase something. Ultimately it is never money. It is something real. A worker purchases the necessities of life not with money but with the real hours he or she commits his or her real self to in a real job. The money received is consists simply of chits (or bits) operating as permissions to consume.

    The unreality of money has been brought to the fore by this crisis. Suddenly, extra money is created ex nihilo, out of nothing. Suddenly, real goods and services can be had for this extra ex nihilo money and even for nothing altogether (like a rent or mortgage “holiday”) albeit still according to rules delivered by state fiat.

    Money does not measure productivity and it does not measure value. Money “measures” the power accorded to people to acquire and possess. It measures the power to do these things because it prescribes how much of these things they can do. This is an identity in logical, mathematical and political economy terms. It is an identity enforced. It is made so because legal law, regulation, custom and finally the state’s monopoly on force and violence prescribe it to be so. This is assuming a functioning state. In a failed state, warlords and criminals have the monopoly or oligopoly on force and violence.

    Money is a human construct. The Eucharist is a human construct. Even language and mathematics are human constructs. How do such constructs work? They palpably do work in certain ways. We have to note that all human constructs are not created equal. First, some are entirely fictive constructs and work by entirely by social agreement and belief. Second, some constructs work at another level because they refer back to something real in a consistent way. This second kind of construct needs a separate term to delineate it. The best term is the very simple term “model”.

    If a human construct models reality in a consistent way then it has empirical, scientific and pragmatic usefulness. Money does not model productivity or value in a consistent way. Indeed, the case is worse than that. Productivity can refer to real production for sure: the real production of widgets for example. However, there are many kinds of produced goods and services and if a single unit (the dollar or other numéraire) is used to value disparate products and services we first run into the aggregation problem. The numéraire ostensibly appears to overcome the aggregation problem.

    To aggregate disparate items we need to use a common “dimension” as it is called in science. Mass is a common dimension and it has numerous uses. How do we most usefully aggregate fuel, humans, baggage and cargo on a jet airliner to see if it can safely take off and gain altitude? We aggregate the disparate items in the mass dimension. We add up the total mass in kilograms. The International System of Units (SI) lists the basic dimension units known to and accepted by science. There are six base dimensions on this list (time, length, mass, electric current, thermodynamic temperature, amount of substance and luminous intensity). There are longer lists of derived units but all can be expressed in base units.

    Nowhere does the dimension “value” or “monetary value” appear in the SI list. This is no mere pedantic point. In science, value is the mathematical prefix placed before a dimension base or derived dimension. It states how many of the base units we have, like 10 meters for example. The value confusion in economics is extreme and indeed ontologically fatal to its claims to accurately or even heuristically measure anything with the dollar or other numéraire. As I have said before, “value” is a notoriously slippery concept in both economics and in moral philosophy. Values are undefinable in objective terms. They are only definable in subjective terms. The objectively definable (the descriptive) belongs to science. The subjectively definable (the prescriptive) belongs to moral philosophy. We certainly do have moral and ethical values. They form our belief systems and operating moral codes.

    Economic value (denominated in dollars) is part of a particular prescriptive moral philosophy calculus and not part of any objective or descriptive rendition of reality. While economics pretends to be objective and sails under the objective banner it has no claim to the objective in ontological terms. The dollar, or other numéraire, does not measure anything clearly, neatly, objectively real. It does measure in its quaint archaic way (money is now arguably archaic to obsolete given our current state of knowledge) many disparate things, some objectively real and some only subjectively real. Then we seek use it to aggregate and equate all things under the banner or perceived or expected utility. It’s a huge grab-bag, and it attempts to take the highly plastic and malleable human desire for utility, generalized expected utility, and make of this a calculus for determining social actions, allocations, rewards and punishments. The calculus falls squarely in the subjective arena and the decision that this money calculus should or should not operate to the exclusion of other moral philosophy considerations, in any particular case, is itself a moral philosophy determination.

    It is not only highly plastic and malleable human desire for utility which moves valuations (the equations of money used to value and compare disparate things) all over the place. There are also differential differences and changes in knowledge and information which move valuations. Finally, there are great events, black swans as they are sometimes called, which are unknown until they suddenly burst upon us. There also what we can call grey swans. Grey swans are known to science but conventional economics for the most part is blind (sometimes willfully so) to grey swans. Climate change is a grey swan.

    Money must no longer be a tool of evaluation for future actions. Science is that necessary tool for that. Money must no longer be a tool of reward according to supposed productivity or supposed merit. Objectively assessed need and human rights must be the tool for that. Money must longer be a tool for assessing values and rights. Moral philosophy and democracy are the tools for that. Money must remain only as chits for permission to consume. The allocation system for these chits must be progressively withdrawn from markets.

    The facts that we have abandoned standard money rules and operations in some ways already and that we have declared (even temporarily) money as not necessary for some things (rent, childcare) in some cases with conditions and in some cases without conditions, illustrate that money and its operations are arbitrary because the laws which institute the operations are arbitrary. Our system is built on a certain high current use of money and markets to coordinate and allocate. This system cannot be entirely changed overnight though parts of it indeed can be as we have seen. Money and markets are not written in stone. They are not based on natural laws (discovered laws of the hard sciences) nor are they based on stone tablets handed down by a supernatural power. They are human inventions.

    We need a progressive, emergent and “systems evolutionary” transition to a new system. Money and markets need to be an ever-shrinking part of that transition. We can start pragmatically and practically by shrinking the ambit of market operations. Some of the first obvious cases are regulating out of existence various financial and market instruments at the highly fictitious and derivative levels. We can continue by only according person-hood and person-hood rights to actual persons, not to corporations. We can remove perverse subisides of all kinds. We can price serious negative externalities according to the science (while price signals are the sole decision-making method) and not by the lobbying of big business and corporate interests. Or we can supersede price signals by mandating targets.

    We must precede in an experimental spirit. We must experiment with how much we can reduce markets and money as our social and real economy organizing principles. Clearly a UBI and JG must be a part of this ecperiment. If a measure goes too far and has a negative effect on all, and not just on rich vested interests, then we must pull back and reconsider. Was all in place to a make given innovation work or it fundamentally flawed? The real economy and the real biosphere are our laboratory for this endeavor. We live full time in the laboratory so this gives a crucial importance to every step. But in an existential crisis (not just CVID-19 but climate change and everything else) near heroic measures MUST be attempted sooner or later.

    “In medicine, heroic treatment or course of therapy is one which possesses a high risk of causing further damage to a patient’s health, but is undertaken as a last resort with the understanding that any lesser treatment will surely result in failure.” – Wikipedia.

  16. I hadn’t thought of “paying for it” by dumping some wasteful spending, like for example the submarine project, but I picked this thought up from some right-wing blog and I heartily concur.

  17. Historyintime, is there any chance of you letting us know who this mysterious “Michael Blakey” is? What about a link? I also note that you’ve already changed his name from the original “Blakely”.

    My googling has me thinking you’ve simply made this character up or else he his someone you met down the pub or behind a bush.

  18. Glad to see Gabriel Z agrees with me; ”  “Shoring up our public services starts with fighting tax avoidance and tax evasion more aggressively.”.

    “Crumbling Economies Must Tackle Tax Evasion To Meet Coronavirus Crisis, Experts Warn

    “Each year, he estimates, 40% of multinational profits are shifted to tax havens and 8% of personal wealth is stashed offshore.

    “Tax lessons from the coronavirus
    Zucman said if there was one lesson we could take from the current economic crisis, it was:  “Shoring up our public services starts with fighting tax avoidance and tax evasion more aggressively.”

    “When countries like Luxembourg offer “tailored tax deals to multinational companies, when the British Virgin Islands enables money launderers to create anonymous companies for a penny, and Switzerland keeps the wealth of corrupt elites out of sight in its coffers,” Zucman said, “they all steal the revenue of foreign nations.”
    https://www.icij.org/investigations/panama-papers/crumbling-economies-must-tackle-tax-evasion-to-tackle-coronavirus-crisis-experts-warn/

    “A progressive European wealth tax to fund the European COVID response
    By Camille Landais, Emmanuel Saez, Gabriel Zucman 03 April 2020
    “European governments have reacted swiftly to the COVID crisis and are now discussing ways to mutualise the cost of the epidemic. This column proposes the creation of a progressive, time-limited, European-wide progressive wealth tax assessed on the net worth of the top 1% richest individuals. If fighting COVID-19 requires issuing 10 points of EU GDP in Eurobonds (or a rescue fund worth 10 points of EU GDP), a progressive wealth tax would be enough to repay all this extra debt after ten years.”
    https://voxeu.org/article/progressive-european-wealth-tax-fund-european-covid-response

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