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‘Morrison’s economic recovery plan may not be ambitious enough’
The Grattan Institute believes Australia could be one of the few countries to experience a V-shaped recovery, but warns that the Morrison government’s current economic recovery plan is not ambitious enough and faces a severe headwind of falling behind on its vaccine rollout.
‘Morrison’s economic recovery plan may not be ambitious enough’
The Grattan Institute believes Australia could be one of the few countries to experience a V-shaped recovery, but warns that the Morrison government’s current economic recovery plan is not ambitious enough and faces a severe headwind of falling behind on its vaccine rollout.
According to the think tank, Australia is one of only a few countries that is likely to achieve a true V-shaped recovery on the back of $200 billion in consumer spending that is heavily reliant on a successful vaccine rollout.
According to the International Monetary Fund (IMF), Australia is likely to have reached its pre-COVID economic levels as of the March quarter, which could help limit long-term scarring.
The IMF’s latest economic outlook sees the Australian economy expanding by 4.5 per cent this year, up 1 per cent on its January predictions following a contraction of 2.4 per cent in 2020.
In upgrading its outlook, the IMF noted that the “Australian economy continues to show a strong recovery momentum” and that a “favourable labour market recovery continues to support a strong rebound in private consumption, added by wealth effects from rising house prices”.
It also stated that record-low interest rates are continuing to boost the economic recovery.
Treasurer Josh Frydenberg pointed to the government’s economic recovery plan, which includes tax cuts, business investment, infrastructure and targeted support as a further boost to the economy.
In a speech to the Tax Institute, Grattan Institute CEO Danielle Woods highlighted the impact of the government's policies so far.
“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.
However, she 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 rollout, 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.”
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.”
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