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A common good frame for economic stimulus

  • 26 August 2019


On 2 April, Treasurer Josh Frydenberg handed down his 2019-2020 budget. Many observers, including this author, raised concerns that the projected surplus and the capacity for the government to honour its commitment to 'guarantee essential services like hospitals, schools and aged care, while tackling the cost of living' would be difficult to achieve if there is a downturn in economic conditions.

Fresh from the 'miracle' election victory in May, the Morrison government quickly went about implementing its promised tax cuts. With the key cross-bench senators' support secured, the $158 billion program was passed into law. The concerns raised about the sustainability of government-funded services prior to the passing of the tax cuts may well prove to be a reality.

Fast forward three months. On 14 August, the Dow Jones Industrial Average fell by 3.05 per cent with the UK's FTSE falling by 1.42 per cent. Australia's ASX followed suit, falling 2.85 per cent the following day.

Economic analysts, including those from Bloomberg, are suggesting market traders are nervous about a global economic slowdown and that fears of recession are not helped by ongoing trade tensions between China and the United States.

Concerns about the economic fallout from the ongoing tensions between China and the US are clearly on the government's radar, with the Treasurer recently saying those tensions 'are weighing negatively on the global economic outlook. And what concerns us is that it spills over, not just in the trade area, but to investment and to capital flows.'

Before the economic commentariat goes into meltdown over the recent declines in the share market, though, it is worth noting that Australia's All Ordinaries Index is several hundred points higher since January — even with a correction of around 400 points from its July peak. The US market similarly has shown strong growth since January and, despite the recent 800-point single-day drop, the Dow Jones index is a couple of thousand points ahead of its January 2019 position.

While we need not yet panic, it would be prudent for the government to plan ahead and prepare for any downturn in the global economy to protect Australian jobs. No doubt Treasury officials here in Australia are carefully watching the global economic climate. And you can bet that they are modelling various options to protect the Australian economy. The challenge for them is whether they advise the government to protect the economy through fiscal stimulus — that is, spend their