April 05, 2020 04:53:14
The Federal Government’s economic response to the coronavirus pandemic has been sweeping, including payments for job seekers and “job keepers”, as well as wage subsidies and support for businesses.
But just how big is that spending?
And how does it compare to the stimulus package that offset the global financial crisis (GFC)?
This chart shows two decades of Commonwealth spending (past and forecast), including both stimulus plans.
Federal government spending over two decades, with stimulus packages highlighted in orange.
The first stimulus, just over 11 years ago, was Australia’s response to world markets collapsing amid the GFC.
In total, the Rudd and Gillard governments spent $51 billion, much of it within a year.
This week, Prime Minister Scott Morrison, confronted with a far worse economic outlook thanks to the coronavirus pandemic, unveiled a plan that would dwarf that earlier response.
During the GFC, Australia was one of only three developed nations to avoid recession. At its peak, in 2008-09, stimulus spending was about 1.8 per cent of the size of the Australian economy.
By comparison, Mr Morrison’s response to coronavirus will be worth an estimated 3.3 per cent of Australia’s gross domestic product this budget year — and 6.1 per cent next year.
In fact, those figures are likely to be much higher because the Government forecasts they are based on are certain to worsen.
The Commonwealth is spending $7,600 per person
Another way to compare the two packages is to filter out inflation and look how at much the Commonwealth spends per person.
Federal government spending per capita, adjusted to today’s dollars (2020).
By this measure, the Rudd and Gillard governments spent, on average, about $2,900 per person (in today’s dollars) to keep the economy afloat.
The Morrison Government’s pledges so far amount to about $7,600 per person.
There’s more to come, too. The Government hasn’t yet put a price on its decision to bankroll childcare centres.
Nor do the charts above include the potential public costs of the massive intervention, mostly via the Reserve Bank, to guarantee up to $125 billion of loans.
State and territory governments are also propping up their economies, and have collectively announced extra stimulus spending worth about $450 per Australian.
How the stimulus overshadows other government work
The Commonwealth’s coronavirus spending is already so large it easily outstrips typical annual spending on huge portfolio areas like health and defence.
A comparison of the latest stimulus spending with other parts of the budget (combined for 2019-20 and 2020-21).
But while some aspects of the two stimulus packages can be compared, the crises that prompted them are radically different.
Raja Junankar, an economics professor at the University of New South Wales, says the GFC involved a collapse in consumer demand.
But worldwide COVID-19 outbreaks, and the shutdowns to contain them, are a much graver economic challenge, he says.
“This time, we have supply-side shocks as well as demand shocks.
“Industries can’t import products from China, so they can’t produce their own goods any longer. And then there’s the Government telling firms and shops to close down.”
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These combined circumstances create a unique problem — how can you kickstart the economy when consumers have very few ways to spend their money?
“That’s the trouble; at the moment you can spend money on groceries,” he says. “Food and perhaps toilet paper if you’re lucky, but not much else.
“You can’t go and buy consumer goods — like TVs, fridges or clothes — because most of the outlets are closed.”
Will the latest stimulus work?
Professor Junankar says it is too early to predict in detail how the COVID-19 crisis will affect Australia’s economy.
He has serious doubts about some aspects of the rescue package — but not its size.
“I’m very pleased to see they’ve no longer got this budget balance fetish, this surplus fetish,” he says.
“This is a huge shock and we need to go into debt to fix it — there’s nothing wrong with that at all.”
The professor has three main concerns about the spending. The first is the delays: many payments are still a month off.
“The most important factor in the Rudd [stimulus] was that it was immediate,” he says.
“They paid out $900 to everyone straight away.
“Why are we waiting? This should have happened a month ago, before lots of businesses closed down and lots of people lost their jobs.”
The second problem, according to Professor Junankar, is the decision to target businesses rather than individuals.
He says the worst-affected industries rely heavily on casual labour, especially young people and women, who will not receive some of the aid targeting workers.
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His third concern is the lack of a “grand investment” to improve the national economy.
Professor Junankar cites the Rudd government’s decision to build school infrastructure and improve home insulation, which had lasting benefits.
“This is an opportunity — we can use it to invest in something we need, something useful like green technologies and renewable resources,” he says.
But despite his scepticism, he says the stimulus measures will be very helpful for some sectors of the economy.
“The Government is obviously trying very hard to tackle this problem. And it’s no easy problem.”
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