A further $50 billion of fiscal stimulus is required to avoid Australia experiencing a “prolonged slump” with more economic scarring.
While the government announced substantial fiscal stimulus in its October budget, unemployment is still expected to remain at 5.5 per cent by mid-2024 – but the Grattan Institute believes that doesn’t have to happen.
“A further $50 billion in fiscal stimulus over and above what was announced in the 2020 Budget is needed to drive unemployment back down to 5 per cent by the end of 2022, a result that would kick-start wages growth nearly two years ahead of the government’s schedule. Australians should not settle for a prolonged slump, with all the scarring and misery it would bring,” Grattan said.
The Grattan Institute believes the more ambitious target of 5 per cent is achievable should the government unleash another $50 billion in fiscal spending on the construction of more social housing as well as increasing the rate of JobSeeker and Commonwealth Rent Assistance.
“Increasing the rate of JobSeeker and Commonwealth Rent Assistance would also be effective stimulus measures, because low-income households are more likely to spend, rather than save, any additional income they receive,” Grattan said.
“This would constitute a permanent increase in government spending, but extra income assistance for Australia’s poorest is long overdue.”
Increasing childcare subsidies and government spending on services should not be taken off the table, while rising public debt also “shouldn’t hold Australia back”.
“Australia has the fiscal space to borrow to support the economic recovery, having come into this crisis with low debt by international standards,” Grattan said.
“And it has never been cheaper to borrow. The Australian government 10-year bond rate is now less than 1 per cent. Adjusted for inflation, the real interest rate at which the Federal Government can borrow is below zero.”