Transcript – Response to Second Stimulus Package

featuring Richard Denniss and Matt Grudnoff


1.45pm SUNDAY, 22 MARCH 2020

Response to Second Stimulus Package
Dr Richard Denniss, Chief Economist, The Australia Institute
Matt Grudnoff, Senior Economist, The Australia Institute

Dr Richard Denniss: The Australia Institute welcomes the announcement by the prime minister and treasurer today of the second round of stimulus to cope with the enormous and unprecedented economic consequences of coronavirus.

We’re glad to see that the government is putting more money into the economy quickly, has learned the lessons of the need to act as the evidence changes. And seeing a lot of money rolling out quickly is exactly what we need for these first rounds of the Coronavirus crisis.

But, while the increasing payments to the unemployed, the cash grants and support the small business are very welcome at this time, it’s important to understand that we are not experiencing a cyclical downturn in the economy. We are experiencing an unprecedented structural change in the entire shape of our economy.

This is the first time that a government has gone into a slowing economy deliberately trying to slow down economic activity. We have to close down our tourism industry. We have to close down large parts of our transport industry. Usually at a time like this, we would be stimulating economic activity wherever and however we can. Because we are not in a period of cyclical decline and because we have entered a structural change in the economy, thanks to coronavirus, the government needs to move on from being targeted and temporary in the design of stimulus. And it’s time for them to look at things structural and sustained in developing new interventions.

We need to base our economic decisions on the science. We know that this is going to last six months minimum as a health epidemic and we know the economic consequences are going to last, will beyond that. So, while the timely expenditure of stimulus is welcome, we are encouraging the government to stop designing a package that is far bigger in scale that is structural design and then sustain in its roll out. Unless the government does that, the bridge its starting to build now will not make it nearly far enough. The design of fiscal policy can’t be based on the values of the Treasurer or the Prime Minister. The design of the stimulus needs to be based on the needs of the economy.

Matt Grudnoff: So the fiscal stimulus is about buying a lower rate of unemployment and buying a higher rate of economic growth and the money that the government is putting out is very welcome.

But this is a structural problem. And if we don’t act now and recognize that structural problem, then we’re not going to solve it. The government is funnelling money out, but it’s not getting any co-benefits from that. That is, they’re just handing out money. This is an opportunity for the government to employ people directly. This is an opportunity for the government to commission projects that employ people. At the moment, all the government is trying to do is to stop business from laying off workers—and that’s a very good thing to do—but in tandem to that, the government needs to also employ people and commission things to employ people. The added advantage of this is that when this crisis is over, we can have sustainable infrastructure. We can have things that have benefits for decades to come. If the government doesn’t do this, all we will end up with is having handed out money and there’ll be no long-term benefits.