Government pulling fiscal support too early, economists warn

 — 1 minute read

The Australian economy could be left teetering on a “financial cliff” in September, economists from St George and IFM have cautioned, as the government retracts its coronavirus support packages.

Speaking on a Bloomberg panel on Thursday, St George Bank chief economist Besa Deda described the end of the JobKeeper subsidies on 27 September, alongside the downsizing of JobSeeker payments and other coronavirus supplements all around the same time as a “financial cliff”.

She commented there is a “real risk” Australia won’t return to growth in the second half due to the rollback, with the possibility of a second wave of COVID-19 infections remaining. 


IFM Investors chief economist Alex Joiner stated most economists would call the federal government’s edging towards cutting back on support “inappropriate”. 

“I think it’s pretty clear that the unemployment rate in the labour market more broadly won’t have repaired itself by the time the JobKeeper allowance ends in September,” Mr Joiner said.

“What we need to see is that expansion of those programs because people have certainty that they can… pay their bills, meet their obligations financially on an ongoing basis while they think re-employment in the economy. 

“The government has asked the people to step out of the labour market so the public health crisis can improve. It would be, I think, remiss of the government to not return the favour by supporting these people that have made that sacrifice.”

He added there is little further action the Reserve Bank can take to support the economy, other than undertaking more unconventional policy and adopting negative interest rates – which it has admitted reluctance against. 

“What the government needs to do… will be to continue the support but also add stimulus to try and drive us out of this economic crisis that we’re in because certain sectors of the economy will certainly not be firing cylinders for an extended period of time,” Mr Joiner said. 

“International travel, international students, that big tidal wave that Australia has to get from that services sector – you know that’s not going to come back for a long time and the people in those industries are going to need the support.”

He added the international side of the economy and the services sector has been a key driver of Australian economic growth during the last five or six years, but it won’t return for some time, leaving workers stranded in the labour market.

Similar to other calls for investment in infrastructure from the super and investment communities, Mr Joiner said creating jobs in the construction sector will be a “necessary” short-term fix going forward.

“And what the Reserve Bank seems to like [to] talk about more than monetary policy now is fiscal reform: that the government needs to set out an agenda for fiscal reform, deregulations, certainly around energy policies, these types of narratives to get the economy going forward in a way that isn’t just relying on direct fiscal stimulus,” he commented.

“Even more so it needs to do that because it’s starting to form a narrative where it doesn’t think it wants to do more fiscal stimulus. The government is looking down the track to fiscal restraint, which probably at this moment, is inappropriate.”

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Government pulling fiscal support too early, economists warn
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].


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