The Morrison Government’s free-spending Budget marks a major departure from previous economic policy, but one that’s right for the times, says Danielle Wood.
“I call it the ‘jump-start the economy strategy’,” the Grattan Institute CEO said this week.
“Push hard to try and ignite wage growth, get people into jobs, and hopefully the momentum builds and the private sector starts to come back.”
She said that Government’s goal is to try to avoid the stagnant economy that Australia was back in 2019 when low wages growth led to low consumption and weak business investment.
“The Government have essentially made the call that getting back to the pre-Covid economy isn’t good enough and that they want to use to skills policies to push unemployment down until it has a four in front of it.
“I think it’s the right move on the balance of cost-risk but it’s a big shift.”
While acknowledging the Government’s Budget assumptions are realistic, Ms Wood cautioned that there are potential downside risks at the same time.
“The key challenges for the next couple of years will be Covid, the rollout of the vaccine, and the opening of borders.
“These will be pivotal to stopping further waves, to building confidence, and to helping some of the sectors which aren’t going to bounce back until borders reopen, like tourism and international education,” she said.
The challenge for other levels of government is going to be the fact that the Commonwealth Budget is now in structural deficit and will continue to be for at least the next decade when the emphasis shifts back to budget repair.
“Some of the spending that’s been locked in [with this Budget] is permanent, so the question then becomes how does the Federal Government finance that?”
“Then we’re back in the familiar territory of whether they try to raise revenue or try to cut spending in order to get the budget back into a stable long-term condition.
Following Ms Wood’s keynote address at the NGA, a Panel of Mayor will discuss local employment and economic stimulus.