Australia has officially entered its first recession in 30 years, but things aren’t as bad as they seem, a major economist has said in defence of the Government’s stimulus policies.
Speaking at the Press Club on Wednesday, Deloitte partner and economist Chris Richardson said he is not worried about the economy, despite the “incredibly obvious and newsworthy” higher debt.
“But that’s the point, this is not an ordinary economy. People have misunderstood what is happening right now, and I am desperate to get that across,” he said.
While debt has increased rapidly, interest rates have also fallen quickly - and are set to remain at record lows for at least another three years.
“That means something really important,” he said.
Pointing to Treasury budget figures, Richardson said there’s a figure that “will surprise a bunch of people”.
“The cost of interest, the amount of interest the Federal Government is paying right now is headed down…as a share of the economy. In fact, the lowest that we've seen in the better part of a decade. Why? Because interest rates have fallen so spectacularly.
“The defence of our lives and our livelihoods is a lot cheaper, this is a great investment... and it's a lot cheaper than you think.”
Earlier in the day, Australian Council of Social Services CEO Dr Cassandra Goldie made a similar point, calling for the JobSeeker and JobKeeper payments to remain at their present rates and avoid a “devastating cut” for 2 million Australian families.
Saving jobs ‘the next war’
Richardson said Australia has had a decade of “toxic arguments” about how to repair the Australian budget, but the country has risen to the Covid-19 challenge.
“We entered this crisis with a healthy budget and lower government debt than most other nations around the world. And that has been perhaps the hidden asset we noticed the least through this.”
However, he said success is still not a sure thing.
“2020 has been a war for our health. The next war is a war for our jobs. And a war for health has many beneficiaries, but perhaps [mainly] older Australians, we're protecting older Australians. The next battle, the battle for jobs, particularly will be about a battle for younger Australians.”
He said this battle will be tougher than anything most Australians have lived through, with the Reserve Bank already essentially sidelined.
The key will lie in the JobSeeker unemployment benefits, Richardson said, noting there was already a strong case to lift the payments even before the pandemic sent 1 million into unemployment.
The Government introduced the $550 Coronavirus Supplement earlier this year, which essentially doubled the fortnightly JobSeeker payment to around $1,100. However, the government intends to reduce the Supplement to $250 per fortnight as of 25 September 2020.
“If it [JobSeeker] goes back to $40 a day, it’s going to be twice as bad because it’s going to be affecting the incomes of twice as many people,” Richardson said.
Continuing, he said that every dollar spent on unemployment benefits is going to work harder than it ever has because the economy is in such dire straits.
“And the last point - something that people I think haven't noticed - postcode by postcode, suburb by suburb, town by town, this crisis hit hard where we already had the highest rates of unemployment,” he said.
“We've had relatively the most job losses where unemployment was already the highest. That means particular regions are doing it really, really tough, and an extra dollar of unemployment benefit does double duty. It does extra heavy lifting at the moment as the best targeted, most effective regional spending we can do.”
Richardson’s words come after similar calls from ACOSS, the ACTU and the Australian National University which recently warned the planned cuts will send millions of Australians below the poverty line.