Fightback on track
CONSULTING firm KPMG forecasts the Australian economy will rebound to pre-pandemic levels by the end of September and the national recovery from COVID-19 will not be as pronounced as other Western countries.
In its outlook for this year, KPMG chief economist Brendan Rynne said the federal government had managed the pandemic well.
While the country was dealing with fresh border closures between NSW and Victoria, it had not been plunged into a full lockdown like in the UK, nor was the health system being overwhelmed with coronavirus cases like in the US.
“Our government has managed this pandemic very, very well, both from a health perspective and also from an economic perspective as well,” Dr Rynne said. “The impact of that is we should also expect our recovery to not necessarily need to be as strong.”
But Australia would not get away unscathed, KPMG said. The Reserve Bank has slashed interest rates to nearly zero while embarking on a $100bn bond-buying program, flooding the country with cheap money to aid the recovery.
Dr Rynne said while the RBA had no option, although the effectiveness of quantitative easing was still playing out, “it was essential for business confidence that the RBA was seen to be doing all it could to support the economy”.
“While we support the RBA’s use of QE, there are side effects. History tells us that in a period of QE and/or balance sheet expansion by central banks, price inflation emerges in assets like houses, shares and bonds, and we are already seeing this occurring,” Dr Rynne said.
“The issue is that rising asset prices will further exacerbate the difference between the ‘haves’ and ‘havenots’ in society. Those with assets going into the pandemic will see their wealth rise with the tide; those that didn’t will see the gap widen.”
To combat asset price bubbles and rampant inequality, Dr Rynne said the government must look at tax reform, such as capital gains and negative gearing, to “dampen the attractiveness of housing investment”. To further put the brake on inequality, KPMG Australia national chairman Alison Kitchen called on the government to retain the rate of JobSeeker payments.