Despite just announcing a $17.6 billion stimulus package, the supposedly economically rational Liberals are preparing an even bigger stimulus soon.
The first package focused mostly on short term ‘holding’ measures aimed at propping up aggregate demand. In other words, their sole purpose is to try and maintain the status quo in the face of uncertainty. The second package seems likely to involve similar propping up for businesses.
There is precious little longer-term thinking involved in this.
Supporters of stimulus may argue that the short-term approach is precisely the point: this is about maintaining demand in the economy until it recovers under its own steam.
But there are problems with this. First, we have not even really begun to feel the effects of the virus across the broader economy. We simply don’t know how bad it might get, or for how long. This continuing hit on confidence will sap the effectiveness of any stimulus package aimed at maintaining the status quo. The first package was a $17 billion stab in the dark and already looks like it wasn’t enough. How many $17b stabs can we afford?
Finally, if the government is going to spend money in preparation for an economic downturn, it should do so in a way that will also generate longer-term benefits in case the stimulus effect doesn’t work. Bringing forward already legislated tax cuts would be one way of doing this, which may have a short-term stimulatory effect but also improve productivity longer term.
The 2020 budget was supposed to be the one that finally turned off the taps Rudd and Swan opened in 2009. Swan tried and failed to deliver a surplus in 2012, famously announcing four years of surpluses that turned rapidly into deficits.
Morrison and Frydenberg too announced that we were back in the black. Instead, we are headed in the other direction once again.