Aus­tralian econ­omy will need up to $90b ex­tra af­ter coro­n­avirus shock, re­port says

Iran Daily - - Global Economy -

Aus­tralian gov­ern­ments need to pour an ex­tra $70 bil­lion to $90 bil­lion into stim­u­lus and sup­port mea­sures to help the na­tion weather the big­gest eco­nomic shock since World War II, ac­cord­ing to a new re­port.

Set­ting out a wide-rang­ing agenda for the next six months, the Grat­tan In­sti­tute ar­gued gov­ern­ments need to phase out coro­n­avirus-re­lated emer­gency sup­port mea­sures more slowly than cur­rently planned to avoid a “fis­cal cliff” that could “put a hand­brake on the re­cov­ery”, the Guardian re­ported.

It also called on gov­ern­ments to roll out other forms of eco­nomic stim­u­lus in­clud­ing ex­tra rent as­sis­tance and child­care sub­si­dies.

With Aus­tralia fac­ing a “glob­ally syn­chro­nized deep re­ces­sion” trig­gered by COVID-19, the re­port noted fed­eral, state and ter­ri­tory gov­ern­ments have al­ready sought to cush­ion the im­pacts by spend­ing more than $160 bil­lion to sup­port house­holds and busi­nesses.

Many of these pro­grams — in­clud­ing the job-keeper wage sub­sidy and the in­crease to jobseeker al­lowance — are due to ex­pire in or around Septem­ber.

The fed­eral gov­ern­ment is con­sid­er­ing Trea­sury’s re­view of the job-keeper pro­gram and has flagged fur­ther tar­geted as­sis­tance to sec­tors that re­quire longer term sup­port, in­clud­ing avi­a­tion and tourism, but the Coali­tion played down fresh spec­u­la­tion about a per­ma­nent in­crease in unem­ploy­ment ben­e­fits.

The Grat­tan In­sti­tute ar­gued gov­ern­ments should ear­mark an ex­tra $30 bil­lion over the com­ing year in or­der to wind down ex­ist­ing pro­grams “more grad­u­ally” and “avoid a se­vere eco­nomic crunch”.

Aus­tralia’s econ­omy is “frag­ile”, it warned, and an “abrupt with­drawal” of gov­ern­ment sup­port would threaten the re­cov­ery by leav­ing a “sub­stan­tial hole in in­comes for house­holds and busi­nesses”.

It sug­gested ex­tend­ing job-keeper be­yond Septem­ber for a fur­ther three months for some in­dus­tries still se­verely af­fected by gov­ern­ment re­stric­tions and ex­pand its cov­er­age to in­clude tem­po­rary mi­grants, short-term ca­su­als and univer­sity work­ers — partly funded by in­tro­duc­ing a lower rate for part-time work­ers.

The re­port also called for a fur­ther $21 bil­lion over the next two years for on­go­ing re­forms such as per­ma­nent in­creases to the jobseeker unem­ploy­ment pay­ment of at least $100 per week, a 40 per­cent lift in com­mon­wealth rent as­sis­tance, and more gen­er­ous child­care sub­si­dies.

And it warned that fur­ther tem­po­rary stim­u­lus is needed if gov­ern­ments want to get unem­ploy­ment back down to five per­cent or be­low by mid-2022. It sug­gests tip­ping another $20 bil­lion to $40 bil­lion into ser­vices, in­fra­struc­ture and so­cial hous­ing con­struc­tion.

These pro­posed mea­sures add up to about $70 bil­lion to $90 bil­lion over the next two years but the re­port said now is not the time to “panic” about in­creas­ing gov­ern­ment debt lev­els.

“As­sum­ing in­ter­est rates re­main low, gov­ern­ments should be in no rush to con­sol­i­date their bud­gets while economies re­main weak in Aus­tralia and across the globe,” said the re­port ti­tled ‘The Re­cov­ery Book: What Aus­tralian gov­ern­ments should do now’.

“Fail­ing to pro­vide this sup­port will con­demn many Aus­tralians to unem­ploy­ment for longer. Dur­ing the Great De­pres­sion, and in many ad­vanced economies in the past decade, pre­ma­ture moves to aus­ter­ity held back re­cov­er­ies and, in some cases, cre­ated new re­ces­sions.”

Ad­di­tional stim­u­lus will need to be an­nounced soon to sup­port con­fi­dence in the com­ing months, the re­port said.

It said fur­ther sup­port may be re­quired if the eco­nomic out­look is worse than ex­pected, es­pe­cially in the event of a sec­ond wave of COVID-19 in Aus­tralia. While state gov­ern­ments should do what they can, the fed­eral gov­ern­ment will need to fund the lion’s share of any stim­u­lus.

It also said the Re­serve Bank should be pre­pared to use un­con­ven­tional pol­icy tools more ag­gres­sively — in­clud­ing re­duc­ing the overnight cash rate be­low zero.

The re­port also called for tu­tor­ing and lit­er­acy and nu­mer­acy pro­grams to be rolled out to help dis­ad­van­taged stu­dents who have suf­fered the most from dis­rup­tions to their nor­mal school­ing dur­ing the pan­demic.

“It would cost about $1.25 bil­lion to help about one mil­lion dis­ad­van­taged stu­dents catch up over the next six months, while help­ing to stim­u­late the econ­omy at the same time,” it said.

Other pro­pos­als in the re­port in­clude tight­en­ing el­i­gi­bil­ity to the early ac­cess to su­per­an­nu­a­tion scheme. It also calls on the gov­ern­ment to aban­don leg­is­lated in­creases in the rate of com­pul­sory su­per­an­nu­a­tion con­tri­bu­tions — an idea that may be pop­u­lar in Coali­tion ranks but would be fiercely op­posed by La­bor.

On en­ergy pol­icy, the re­port said gov­ern­ments should “ig­nore calls for stim­u­lus spend­ing for in­fra­struc­ture that is in­con­sis­tent with a low-emis­sions fu­ture” and should con­sider a manda­tory roll­out of smart me­ters.

Not­ing that parliament­s rose and de­ci­sion-mak­ing was cen­tral­ized at the height of the pan­demic, the re­port called on gov­ern­ments to act now to strengthen ac­count­abil­ity and over­sight — say­ing trans­parency is even more im­por­tant in a time of cri­sis.

It said the na­tional cab­i­net of fed­eral and state and ter­ri­tory lead­ers should de­velop rules to pro­vide trans­parency, while the cre­ation of a na­tional in­tegrity com­mis­sion “is now even more ur­gent, given that emer­gen­cies of­ten pro­vide cover for wrong­do­ing”.

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