Business Daily Media

Men's Weekly

.

Frydenberg's three-stage economic recovery is abominably hard to get right

  • Written by Warren Hogan, Industry Professor, University of Technology Sydney

Gone are the days when economic policy was adjusted once each year by the government in the budget and fine-tuned once each month at meetings of the Reserve Bank board.

The coroanvirus means we haven’t had a budget in more than a year[1]. What the Reserve Bank has done to interest rates means its monthly board meetings matter less.

Governor Philip Lowe reaffirmed this week that monetary policy was on hold[2] for the foreseeable future. The bank’s cash rate is as low as it can go (actually well below[3] its 0.25% target) and the bank will only intervene in the bond market if it has to in order to keep bond rates low (which it doesn’t — the demand for even the rush of new bond issues is much bigger[4] than the supply).

It has lobbed the ball to Frydenberg’s side of the court.

The only situation in which it might be brought back into play is if the government ran into funding problems, of which there is no sign whatsoever.

Holding the racket

Frydenberg's three-stage economic recovery is abominably hard to get right Credit: Josh Frydenberg.

The treasurer’s problem is sequencing, and we will are likely to get hints on how he’ll play it in the economic statement[5] to be released today.

The first challenge was to limit the damage to the economy from the initial shock near the start of the year — to stop a vicious cycle of weaker spending, plummeting investment and soaring unemployment.

These self-reinforcing crises required a circuit breaker.

The emergency stimulus provided through Jobkeeper and Jobseeker has been a great success at putting a floor under incomes and demand.

The government ensured a basic income for people whose jobs were axed or at risk, kept hundreds of thousands attached to their jobs and bolstered household incomes despite a massive loss of activity. It gets a tick.

But these emergency measures will not get the economy going again once the crisis has eased.

Some argue they will stand in the way of a recovery if they keep people ensconced on benefits or attached to firms without futures.

A tricky transition

Phase two will require genuine fiscal stimulus: not a security blanket of the kind we have had, but a direct injection of money that will spark a new wave of investment and employment.

The trick is to sequence it properly.

The announced tapering of JobKeeper[6] and JobSeeker[7] will cut incomes and cut jobs as firms pay people less and realign staff levels in line with lower subsidies.

The government believes it has got it right, but it is forecasting an 80% drop in JobKeeper payments between September and the end of the year. It might not be a cliff[8] but it is still a very steep slope that will need to be matched by a sharp recovery in economic activity.

It needs to be ready to revise the timetable as needed. Its current projections look like a best case scenario.

An unknowable stage two

The second stage will involve a good deal of spending on infrastructure. But, especially without certainty about immigration, it is hard to tell what will be needed.

The pandemic will have changed the way we work and play. It is not yet clear whether people take advantage of remote working and move out of congested cities. it is not yet clear what it will mean for digital health, digital education and digital shopping.

An even-harder stage three

The final stage will involve structural reforms; alterations to tax settings, regulations and industrial relations. Which is where it gets really hard. It will require not only sequencing but getting agreement across the political divide.

No civil society can base its economic and social structures on the mere desire for efficiency. Fairness and social justice matter just as much, and they can best be guaranteed if the measures are pulled together as a package with trade-offs that protect the values that matter to Australians.

That’ll be Frydenberg’s biggest challenge. The future doesn’t need to be rushed out this week, or in the October Budget, but in the months to come it’ll have to take shape.

References

  1. ^ more than a year (ministers.treasury.gov.au)
  2. ^ on hold (www.rba.gov.au)
  3. ^ below (www.rba.gov.au)
  4. ^ much bigger (www.abc.net.au)
  5. ^ economic statement (ministers.treasury.gov.au)
  6. ^ JobKeeper (theconversation.com)
  7. ^ JobSeeker (theconversation.com)
  8. ^ cliff (theconversation.com)

Authors: Warren Hogan, Industry Professor, University of Technology Sydney

Read more https://theconversation.com/frydenbergs-three-stage-economic-recovery-is-abominably-hard-to-get-right-142841

pay.com.au appoints new CEO and Managing Director

The former COO will lead the company’s next growth phase, with ex-CEO Edward Alder transitioning into the role of Managing Director AUSTRALIA, 25...

Tacking the skills shortage — why L&D is failing and what to do about it

The Australian economy is in a tough spot right now, and a huge part of the problem is a massive skills shortage. Late last year, businesses were st...

How reducing revenue leakage could help your business stay in the black in FY2026

It’s time to stop legacy revenue management platforms and processes draining your profitability. Is boosting the bottom line an overarching goal ...

Technical Debt Stifling Path to AI Adoption for Global Enterprises

Outdated legacy technologies costing organisations the ability to innovate, money, time and potentially, even customers Technical debt and an ov...

Attract. Impress. Keep. The new small business growth playbook

Running a small business is a marathon that often feels like a sprint. You are chasing leads, juggling admin, building a brand and trying to carve...

Amazon to expand data centre infrastructure in Australia and strengthen AI

Amazon has announced plans to invest a new total of AU$20 billion from 2025 to 2029 to expand, operate, and maintain its data centre infrastructur...

Sell by LayBy