The moral hazard of virus lockdowns
When the Victorian lockdown was announced it didn’t take long for commentators to start asking who would pay to support casual workers who would be forced to go without wages for a week.
The Victorian government offered $250 million in support payments for business owners but suggested that it was the Commonwealth’s responsibility to provide additional support for workers.
On Monday, the shadow minister for senior Australians and aged care, Clare O’Neil, told ABC’s Patricia Karvelas that the Morrison government should provide some form of income support for workers who were unemployed because of the lockdown. She said that this was particularly important in view of the fact that the lockdown could be extended.
Michelle O’Neill, the president of the ACTU, on the same Karvelas show, said the government should introduce Jobkeeper mark two, to provide income support to workers who were going without funds. She said there were half a million casual workers who had lost income and if the lockdown went on for another week then permanent workers would run out of leave and lose wages.
The acting prime minister, Michael McCormack, said that the commonwealth had already provided Victoria with $40 billion in special assistance during the pandemic. The argument put by some economists is that a large part of this money has flowed to the Victorian government by way of budget support and that it should have established a contingency fund to meet the full costs of any lockdown it introduced.
Senator Matt Canavan told ABC media that there needed to be clearer rules about when a state was eligible for funding, based on the hotspot concept.
The Nationals senator said it was ridiculous for the Victorian government to shut down a whole state when there had not been any community transmission in regional Victoria. There was no reason why people in regional Victoria should not continue working.
He was pointing to the issue of moral hazard: this is a situation where the propensity for a government to introduce politically popular lockdowns increases because there is no economic risk entailed since the commonwealth will pick up the tab. Canavan says that without strict rules, states will exploit the funding for populist purposes.
Victorian authorities strengthened their claims for more funding on Monday, pointing to the risk to private aged care homes which may prolong the lockdown.
It transpired that last November the federal government had repealed the restriction on aged care workers working in more than one establishment. One of the aged care workers who had tested positive over the weekend was working in two nursing homes while she was infectious. The commonwealth reinstituted the ban on double workplaces last week, but it was too late to stop community transmission in aged care.
However, the culpability of the federal government doesn’t neutralise the moral hazard issue. This means that any finding provided by the Morrison government should be subject to strict rules to ensure that, as Treasurer Josh Frydenberg said over the weekend, it doesn’t set a precedent.
The federal government shouldn’t rush into any payment arrangement but should wait and see how things develop.