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‘Be careful’: RBA reveals the forgotten lesson from the GFC

Jessica Yun
·4-min read
Left: Treasurer Josh Frydenberg; Right: RBA deputy governor Guy Debelle. (Source: Getty)
Left: Treasurer Josh Frydenberg; Right: RBA deputy governor Guy Debelle. (Source: Getty)

Two years ago, in December 2018, Reserve Bank deputy governor Guy Debelle gave a speech on the lessons that had been learnt from the global financial crisis. At the time, the GFC had just marked its tenth-year anniversary.

But, looking back, there’s something he left out from that speech, Debelle said in an online webinar on Tuesday.

“There was one lesson from the crisis I didn't talk about two years ago that is relevant to today,” he said.

“Be careful of removing the stimulus too early.

“A number of European countries learned this lesson to their cost after the global financial crisis.”

Debelle’s comments come as Australia is just four months away from the ending of both the JobSeeker boost and JobKeeper payments.

How did Australia avoid the GFC?

Australia was only one of four nations around the world that avoided the otherwise-global downturn, along with Israel, Poland, and South Korea.

When the 2008-9 crisis hit, then-Prime Minister Kevin Rudd doled out cash payments under a $42 billion stimulus package that saw 13 million Australians benefit.

Australian workers earning below $80,000 received $950; those earning between $80,000 and $90,000 received $650; and those earning between $90,000 and $10,000 received $300.

Families, low- and middle-income families, and farmers also saw additional $950 payments.

The Rudd-era payments are widely credited as playing a key part in staving off the recession that hit the rest of the world, though Australia’s strong economy at the time was also buoyed by a significant amount of resource exports to China.

Similarly, the JobSeeker boost and the JobKeeper wage subsidy have been central to the Morrison Government’s Covid-19 economic response.

But the Covid-19 recession has hit Australia much harder than the impact of the GFC.

“The contraction in output in the global economy and in the Australian economy has been considerably larger and more synchronised than in 2008/09,” Debelle said.

Australia’s fiscal stimulus package has been the largest the nation has ever seen outside of wartime, with the budget deficit – the highest since World War II – now totalling 11 per cent of national GDP. Net debt is estimated to peak at 996 billion, or 44 per cent of GDP in June 2024.

The 2020-21 Federal Budget has outlined just under $100 billion in new Covid-19 response and economic recovery measures.

But in a crisis, timely policy responses are effective and the spending is justified, Debelle indicated.

“In a crisis, go fast and go hard. Don't die wondering.”

Treasurer Josh Frydenberg defended the size of the deficit and debt in a recent address to the National Press Club.

“This is a price worth paying to help Australians through the greatest economic challenge of our time and set us on a path to recovery,” he said.

JobSeeker, JobKeeper set to last until March 2021

The $550 JobSeeker boost was initially slated to end on 28 September this year.

This was extended to last until 31 December, but at a reduced rate of $250.

Earlier this month, Morrison confirmed that the Coronavirus Supplement payment would be extended again until 31 March 2021, but again at a reduced rate.

From January until March, welfare recipients will receive just a $150 supplement on top of the JobSeeker base rate of $565.70 per fortnight.

Many groups, including politicians, charities, not-for-profit organisations as well as business groups and professional firms have called for a permanent increase to the base rate, with many arguing that the $40-a-day rate falls below the poverty line.

Meanwhile, JobKeeper has been extended until 28 March 2021 but split into two ‘tiers’ depending on your hours worked.

The rate will drop on 4 January from $1,200 per fortnight to $1,000 per fortnight if you’re eligible for Tier 1, and $750 to $650 per fortnight if you receive Tier 2.

In late June, thinktank Grattan Institute said the Australian Government would have to spend $70 to $90 billion in additional stimulus across the next two years to recover from the economic crisis.

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