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‘House on fire’: More stimulus from government urgently needed

·4-min read
a map of australia burning and scott morrison, stephen koukoulas
Scott Morrison's two fiscal stimulus packages are like turning up to a burning house with a bucket of water, writes independent economist Stephen Koukoulas. (Source: Getty, Yahoo Finance)

When your house is on fire, turning up with a bucket of water is a good thing.

But is it enough to put out the fire?

Clearly not. You need thousands of buckets of water or their equivalent to douse the flames and rescue whatever is left of your house.

This analogy can be applied to the two fiscal stimulus packages from the Morrison government – they are the proverbial bucket of water on the fire which is seeing Australia head towards a deep recession, maybe even a depression.

In simple terms, they are the right thing to do, but they are too small and given the way many are being framed, will not kick in for many weeks, even months which is likely to be well after the pain of unemployment, zero hours work and business insolvency have hit millions of people.

It’s getting urgent

Things are moving quickly in the coronavirus horror that is killing people and crippling the economy.

There is no doubt that absent any policy action, Australia is on the cusp of deepest most pernicious economic catastrophe since the 1930s Great Depression.

The unemployment rate on track for 10 per cent, 12 per cent, maybe more. It is impossible to make a reasoned forecast when things are evolving so quickly.

The good news is, well, it is a lesson we have learnt from that Depression and more recently the Global Financial Crisis, is that hard hitting, decisive and well targeting policy changes can at least partly offset and minimise these negative influences.

In simple terms, the government needs to get money into the economy, and lots of it.

It needs to do it NOW.

It needs to follow many of the aspects of the fiscal stimulus measures during the GFC with cash injections to the economy.

The sky is the limit

It is largely irrelevant to ask how much this economic support will cost. Such questions are akin to asking how much water is needed to put out a fire. Pour all the water you need until the fire is out and worry about the mopping up after the fire is out.

For policy makers, the amount of money needed has no limits.

It might be $100 billion. It might be $150 billion. It could be more.

The first two stimulus packages from the government must be ramped up. They will be.

I am not sure who said it but the quote “when this crisis is over, let’s not look back and have any regret that what we did was too little, or too late”.

As things stand, the packages are too small and are being paid too late.

Payments to those on Newstart, pensions and carer payments are not being paid till 31 March. Payments for business are not being paid until they lodge their March quarter Business Activity Statement, which is likely to be in the middle of April.

Many of those business are being forced by the government to close now. This month long gap will send many to the wall, never to be back again.

In simple terms...

The economy is in dire straits.

Workers are being sacked or asked to work fewer hours.

Businesses are closing not only closing because they government is telling them to do so, but also because customers are staying at home to reduce the risk of getting the coronavirus, because they have no money because they have lost their job and they are saving what money they have because the future is so uncertain.

The government needs to provide financial support for the economy. For the unemployed, for the small business owners, for anyone who needs support so that they can pay their rent, their mortgage, their food and other essentials.

To do this well, hundreds of billions of dollars will be needed.

The government must do it now. Cut the red tape. Make it simple to access and be paid. Protect at least some jobs, some businesses.

When this catastrophe is over, let’s not look back with regret that we could have done more to help people.

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