The economy is in good shape. Got that?
By David Solomon
According to Prime Minister Morrison and Treasurer Frydenberg the emergency measures they announced this week are necessary only because of the economic impact of the coronavirus pandemic and are directed solely at fixing the specific problems that it is causing.
Indeed, we should be grateful that the economy is so healthy that they are able to deal effectively with the downturn caused by the virus. They even imply that they worked so hard to get the economy into the black so that they could handle crises such as this.
Imply? No, the Prime Minister states it as a fact. Mr Morrison said, ‘We’ve balanced the budget and managed our economy so that we can now use this to protect the health, well-being and livelihoods of Australians. Our targeted stimulus package will focus on keeping Australians in jobs and keeping businesses in business so we can bounce back strongly.’
But of course its not a fact that ‘we’ve balanced the budget’. That’s what the Treasurer said last year but it wasn’t true then either. He was claiming then to have achieved what he was planning to do during this financial year. That dream has turned out to be a nightmare and all those $35 ‘BACK IN BLACK’ Liberal Party mugs have had to be withdrawn from sale. The odds are that Treasurer Frydenberg will never ever oversee a balanced budget.
Now all this spin wouldn’t matter if it weren’t for the fact that the Prime Minister and his government are driven by partisan politics in shaping their financial and economic response to the coronavirus crisis. As Kevin Rudd pointed out in an article in the Financial Review this week, the present government’s strategy has been based on differentiating itself from what happened during the Global Financial Crisis, on being able to show that ‘Its not a Rudd stimulus’. That is because the coalition for a decade has done its best to deny the effectiveness of the way the Rudd Government dealt with the GFC and avoided the recessions that swept through most other developed countries.
It has also felt the need to defend its own previous policies, such as its refusal to increase the Newstart allowance. As a result its new measures provide a one-off boost for those on Newstart along with everyone else on government benefits. This means the current inadequate and much criticised level of Newstart allowances are not being changed.
Three-quarters of the package is directed to small and medium business, the remainder to families and individuals. But in keeping with the Government’s political view that the budget is in good shape (aside from this coronavirus hiccup) there has been no attempt to boost the economy generally.
It would be interesting to know to what extent the Government followed Treasury advice in devising this package – Rudd and his Treasurer Wayne Swan, famously followed the advice of their Treasury Secretary to ‘Go hard, go early, go households’. What we do know is that 14 years ago the current Treasury Secretary, Steven Kennedy, co-authored a Treasury paper titled ‘A primer on the marcoeconomic effects of an influenza pandemic’ that concluded:
‘…quickly re-establishing consumer and investor confidence is likely to be one of the important roles for governments to play. Governments might also consider policies that help viable businesses through the worst of the pandemic – in particular those businesses, such as restaurants, that are likely to be severely affected by a pandemic. Lastly, there may be an important role for governments in stimulating growth in the economy. This would not only be in terms of monetary policy, but discretionary fiscal policy would also be important in stimulating demand and promoting improved confidence.’
Is there sufficient stimulus in this package? How much more will be in the coming budget? Despite a lot of hype, what has been produced so far doesn’t seem likely to do much to re-establish consumer and investor confidence. The share market fell when the Prime Minister and Treasurer announced its contents.
David Solomon is a former political and legal journalist.
First published at Pearls and Irritations, Friday March 13 2020. See; https://johnmenadue.com/david-solomon-dont-panic-the-economy-is-fine/