The government might have to spend more – and more often – if it wants Australia to recover, according to Treasury boss Steven Kennedy.
Speaking on an Australian Business Economists webinar, Treasury secretary Mr Kennedy said the government may have to launch another series of interventions in the economy if it wants the country to prosper post-COVID.
“Given the lack of conventional monetary support available, the recovery could falter without a strong fiscal policy response, leading to years of anaemic growth,” Mr Kennedy said.
“Unemployment would become entrenched, reducing the productive capacity of the economy. Lower growth also means that inflation and wages will likely remain lower for longer.”
Mr Kennedy said that “semi-automatic stabilisers” – fiscal measures triggered if output or unemployment deteriorate below a certain level – is one tool that Treasury might explore, but warned that “any move towards more active fiscal policy needs to be pinned to credible long-run anchors”.
“The living standards of Australians will ultimately depend on the drivers of long-run economic growth, population participation, and productivity growth,” Mr Kennedy said.
Mr Kennedy also acknowledged concern around the assumptions contained within the budget, saying that while some uncertainty is to be expected it is “usually contained”.
“We are normally debating small amounts of macroeconomic variation from trend, and small changes to tax and spending…this budget has been unusual in that there has been so much uncertainty about the future of the economy,” Mr Kennedy said.
“But fiscal policy has adapted and been successful in supporting the economy. The recovery will take time, and there are new challenges for macro policy, but Australians can be confident that, while bumpy, there is a clear path to recovery.”