Time for fiscal support: Treasury

By Cameron Micallef

November 06 2020
Share

Australia has fired its last bullet in terms of monetary policy with fiscal support now needed, according to the Treasury boss.

Speaking at an Australian Business Economist webinar on Thursday, 5 November, Treasury secretary Steven Kennedy said the movement may have to launch another series of interventions in the economy to help with unemployment post-COVID.

“Given the lack of monetary support available, the states and territories can also play an important role in supporting the economic recovery, especially in the areas where they have primary responsibility and are better placed to design and implement policy, including social and other infrastructure,” Dr Kennedy said.

He explained that while the Reserve Bank lowered the official cash rate to 0.10 percent and announced a new wave of quantitative easing worth $100 billion, such action was limited in supporting Australia out of a recession.

“While the RBA’s actions will provide important additional support, the scope for these policies to provide sufficient stimulus is limited and has necessitated the large levels of fiscal support both at the onset of the pandemic and in the budget,” Dr Kennedy explained.

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.”

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

sections

sections

sections

sections

sections

sections

sections

Invest