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Government’s unambitious recovery plan threatens stagnation: Grattan

By Lachlan Maddock
 — 1 minute read

The government’s recovery plan isn’t ambitious enough and faces severe headwinds as the vaccine roll-out slows, according to the Grattan Institute.

While Australia might be one of the only countries to achieve a true “V-shaped” recovery, significant challenges remain, according to Grattan Institute chief executive Danielle Wood. 

“It’s absolutely extraordinary that business profits actually increased in the first half of 2020 compared to the second half of 2019 and that was on the back of substantial government support, and particularly the centrepiece JobKeeper wage subsidy scheme,” Ms Wood said in a speech to the Tax Institute. 

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Ms Wood warned that “serious carrots and sticks” might be needed to ensure full vaccine coverage and prevent new outbreaks of COVID-19. Significant delays have hit the Morrison government’s vaccine roll-out, with herd immunity now unlikely to be achieved until late in 2021. 

“While we don’t have herd immunity there is a chance it gets out and we face another wave. That would obviously be incredibly devastating for confidence, for the economy, in a world where a lot of those government safety nets have now come off,” she said.

Monetary policy as a tool of “broad macro stabilisation” is also no longer effective, and Ms Wood also criticised the government’s medium-term unemployment strategy, saying “I don’t think that is ambitious enough”. 

“Here’s why: it is almost certainly well above the rate of full employment. When we talk about full employment, what we talk about is the rate that if you dropped unemployment below that you’d start to see some serious wages growth. I think that’s where we should be aiming to get to. We want to see wages growing again,” Ms Wood said. 

“The risks of doing too little is a return to the secular stagnation world. This is not a world that we want to return to.”

 

Government’s unambitious recovery plan threatens stagnation: Grattan
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