The Australian economy is dealing with unprecedented circumstances as a result of the ongoing coronavirus pandemic, which continues to present a deadly threat to humanity. With the entire world in lock-down, the economic implications surrounding mass unemployment and the collapse of global financial markets has made it undeniably necessary for governments across the world to increase expenditure.
A notable strategic shift in the Federal Government’s budgetary stance has occurred, with an adamant and urgent focus on stimulating the economy as opposed to returning to surplus and getting “back in the black.” In the wake of a consolidated relief package amounting to $320 billion, being announced by Treasurer Josh Frydenberg, it is evident that strong fiscal policy comes from spending at the right times and in the right places.[i]
Over the past two decades, Australia has seen a pattern emerging with governments of both major political parties continuously running budget deficits to finance areas of expenditure.[ii] When Kevin Rudd began his term as Prime Minister in 2007, his government had inherited an almost $20 billion surplus from the Howard Liberal Government before him.[iii]
Faced with the risk of a recession, in the wake of the 2008 financial crisis, the Rudd Government was able to prevent Australia from the widespread chaos and breakdown that ensued in other nations.[iv] However, if it were not for the disciplined approach of previous Treasurer Peter Costello in actively pursuing fiscal consolidation, it is unlikely that the Australian economy would have been left unscathed.[v]
Whilst there are benefits to both surpluses and deficits, one budget outcome is not intrinsically better or worse than the other. With all things considered, the underlying factor on what makes either spending or saving justifiable is the socio-economic context at any given point in time.
The argument that reducing overall expenditure should be the overarching macroeconomic goal can only be made when employment figures are favourable and inflation is at a desirable level. In saying that, it is irresponsible to enter into further unremunerative debt in a moderately stable economic situation, where reckless programs and a disastrous allocation of public funds leaves government bank accounts dry for future generations.
In our state of Victoria, the immense accumulation of net debt forecasted at over $70 billion in the next financial year will bring with it the burden of interest repayments for years to come.[vi] Whilst emergency measures being taken by both state and federal governments are undisputedly required, the exact magnitude of these funding injections needs to be carefully considered as not to exacerbate the already existing consequences of an economic downturn.
In circumstances where future outlooks are dim, those who prescribe to the neoliberal economic thought of the Reagan/Thatcher era will stand opposed to introducing any form of subsidy or welfare payment aimed at easing the onset effects of a recession, thereby benefiting the national interest. Instead, in times such as these, ‘deficit’ should not be a dirty word, where those with a vested interest repulse at the idea of continued government intervention.
Policies aimed at invigorating both consumer and business demand in the short-run are designed to drag the economy out of recession, but governments must not fall into the trap of spending excessively beyond their means when conditions begin to improve.
Altering the level of government appropriation isn’t the only solution to our current economic woes, with a greater focus on avenues of increasing the credit available to small and medium-sized firms being a possible option. Recent policy announcements by the Reserve Bank aimed at increasing liquidity through the cash supply will likely ease the pressure off households and firms once lockdown restrictions are lifted and the economy is in a position to bounce back into normality.[vii]
Beyond this, other measures such as import tariffs and a moratorium on foreign investment may be required to protect Australia’s national industries in the aftermath of COVID-19. With the news of Virgin Australia entering into voluntary administration, the next step on whether some form of a government bailout is necessary is highly relevant to the question of increasing outlays, despite the potential ramifications. Nevertheless, it is beyond doubt that the welfare of our nation rests in supporting key sectors of the economy by any means possible.
The age-old debate over whether ‘to save or not to save’ is ultimately about finding the right balance between consolidating revenue and injecting further spending into the economy at the right time. Governments should be fiscally disciplined as not to jeopardise the next generation and place the livelihoods of Australians at risk should another crisis emerge. In this way, our country will have the ability to bounce back from a ‘rainy day’ recession and prosper into the future.
[ii] Trading Economics 2020, Australia government budget, viewed 25th April 2020, <https://tradingeconomics.com/australia/government-budget>.
[iii] Alberici, S 2013, Economic comparisons are useless without context, viewed 25th April 2020, <https://www.abc.net.au/news/2013-05-07/alberici-economic-comparisons/4672166>.
[iv] The Sydney Morning Herald 2008, Rudd unveils $10.4b stimulus plan, viewed 25th April 2020, <https://www.smh.com.au/business/rudd-unveils-104b-stimulus-plan-20081014-50a6.html>.
[v] Makin, T 2018, Kevin Rudd did not save the economy in 2008, viewed 25th April 2020, <https://www.afr.com/policy/economy/kevin-rudd-did-not-save-the-economy-in-2008-20181015-h16ne3>.
[vi] Baxendale, R 2020, Victoria to borrow $24.5bn emergency loan, viewed 25th April 2020, <https://www.theaustralian.com.au/nation/politics/victoria-to-borrow-245bn-emergency-loan/news-story/583e25a4785cff06cf2577132449b0bb>.
[vii] Reserve Bank of Australia 2020, Statement by Philip Lowe, Governor: Monetary Policy Decision, viewed 25th April 2020, <https://www.rba.gov.au/media-releases/2020/mr-20-11.html>.