Governments throwing around money is always going to be politically popular. But, as Margaret Thatcher famously noted, sooner or later governments run out of other peoples’ money. When the Rudd government announced its first stimulus measure in the face of the GFC – a $900 cash payment to all Australians – the conservative opposition naturally criticised the move. But, by unleashing a wave of spending, it was probably exactly the short-term boost the economy needed at the time.
The problem was that Rudd and co. had no other ideas. So they did it again. And again. But, rather than investing wisely, the next rounds of Rudd “stimulus” were nothing more than sops to the government’s biggest political cronies: building and teachers unions.
On the contrary, the Morrison government is largely targeting one of the economy’s biggest employers, retail.
On Tuesday night, the Morrison government announced billions in budget measures which are set to directly benefit businesses, including massive asset tax breaks, wage subsidies for young employees, and accelerated income tax cuts which are set to spur spending in the retail sector[…]
Retail has held up better than expected during the shutdowns, probably largely as a result of the extra cash many Australians found in their bank accounts. But “free” money on its own is not a strategy.
Solomon Lew, the billionaire founder of retail company Premier Investments, said the budget was one of the best he’d seen in his career and was set to benefit “nearly every single business in the country”.
“It cannot be understated just how much this will provide a shot in the arm to employment, youth job creation, consumer confidence and spending. This budget will help bring the Australian economy out of the doldrums and back to where it needs to be,” Mr Lew said[…]
“Treasurer [Josh] Frydenberg and the Morrison Government should be commended for delivering such a formidable, and importantly, manageable, budget that will provide a much-needed boost to national economy and the broader retail environment,” Mr Lew said.
It should be noted that the Morrison government has splashed out cash payments much like the first round of Rudd stimulus. But, unlike Rudd and then-treasurer Wayne Swan, Morrison and Treasurer Josh Frydenberg have their eyes set on rebuilding the economy from the ruin of the Wuhan plague.
Australia’s retail sector has performed better than expected through the COVID-19 pandemic largely due to massive stimulus from the government’s JobKeeper and JobSeeker schemes, however, retailers had expressed a desire for the budget to tackle longer-term reform, such as industrial relations or business investment laws.
Such moves were absent in Tuesday’s announcement, however retailers were still supportive of the largely business-focused budget. Australian Retailers Association chief executive Paul Zahra said the announcements would help keep “money in the bank” for struggling retailers[…]
Analysts were largely positive on the budget’s benefit for the retail sector, with Credit Suisse saying it was “very favourable”, largely due to the income tax cuts and asset write-offs for businesses under $5 billion in revenue.
Of course, there are still some wicked variables in the mix. The government is banking too much on the development of a COVID vaccine by next year. This is, as previously noted, “a hope not a strategy”. The government would be far better advised to pressure state premiers to take their fingers off the panic-button for once. The Victorian government, especially, needs to be forced to get its shambolic house in order.
While government debt is set to skyrocket, as a percentage of GDP, Australia will still be in a far better fiscal position than most other comparable nations.
Ultimately, the proof of Morrison and Frydenberg’s bold budget strategy will be in the pudding. If, despite all the government largesse, the economy still lands like a soggy blancmange, that record deficit will start to look a lot less manageable.
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