Publication date: 22 Apr 21 |
Source: THE TAX INSTITUTE
SYDNEY, 22 April 2021: A successful COVID-19 vaccine rollout is crucial to Australia’s economic recovery, as government stimulus measures come to an end.
Delivering her Economic Outlook for Australia at The Tax Institute’s Financial Services Conference today, Danielle Wood, CEO of the Grattan Institute said Australia’s economic recovery from the COVID-19 has looked like a V – a sharp upturn as we rebuild – but there are challenges remaining.
“It’s absolutely extraordinary that business profits actually increased in the first half of 2020 compared to the second half of 2019 and that was on the back of substantial government support, and particularly the centrepiece JobKeeper wage subsidy scheme,” Danielle said.
A fall in consumption during 2020 combined with government stimulus resulted in a total approximately $200 billion in additional savings for Australian households.
“That is making our economic policy makers feel more reassured. So as those government emergency supports come off, what they’re banking on is that this $200 billion making it’s way into the economy.”
One of the big risks to Australia’s economic recovery is delays to the rollout of the COVID-19 vaccine.
With concerns around the AstraZeneca vaccine mounting, Danielle said that, “serious carrots and sticks might be needed” to ensure the vaccine is widely taken up by the community.
“While we don’t have herd immunity there is a chance it gets out and we face another wave. That would obviously be incredibly devastating for confidence, for the economy, in a world where a lot of those government safety nets have now come off.”
Danielle went on to say that using monetary policy for broad macro stabilisation of the economy is, “no longer possible within the range of conventional tools.”
Instead, fiscal policy comes into play in times of recession and recovery. Danielle said of the current Government medium term strategy of pushing unemployment down until it is below 6%, “I don’t think that is ambitious enough.”
“Here’s why: it is almost certainly well above the rate of full employment. When we talk about full employment, what we talk about is the rate that if you dropped unemployment below that you’d start to see some serious wages growth. I think that’s where we should be aiming to get to. We want to see wages growing again.”
She said that rate is likely in the “mid to low 4s”.
“The risks of doing too little is a return to the secular stagnation world,” Danielle said. “This is not a world that we want to return to.”
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