Government's record Covid-19 spending a worthwhile investment
Countering a sea of critical commentaries, experts at Deloitte have put forward an analysis that backs the government’s record breaking Covid-19 relief program. The money is cheap, spending is already reaping tangible benefits, and the resulting debt will not necessarily leave a lasting impact on public coffers.
In response to the Covid-19 crisis, the Australian government has skyrocketed its government expenditure with the establishment of three support packages to the tune of $17 billion, $66 billion and $130 billion respectively. The money is being deployed to mitigate the severe short-term economic consequences being faced by Australian businesses, entrepreneurs and freelancers.
The record austerity measures is leaving many Australians concerned on the impact it will have on national debt, which already was rising before the coronavirus pandemic. In a new analysis however, experts at Deloitte say that the massive short term benefits of the packages underline the spending.
According to the Big Four firm, the latter $130 billion package deployed as a wage subsidy has so far saved approximately half a million jobs. This has eased the rate of job cuts that were being made across the country, as businesses including consulting firm look to cut costs at a time of crisis. This benefit to the labour market could in fact be much higher, with a similar analysis by Westpac dwarfing Deloitte’s estimates by an additional 500,000 jobs saved.
In any case, the most comprehensive benefit of such targeted government spending is that it maintains a degree of momentum in the economy, making it easier to rebuild in the aftermath of the crisis. “So not merely will unemployment go up less in the first place, it will also go down faster thereafter,” contend Deloitte’s analysts.
The accounting and consulting firm illustrates the importance of easing the unemployment numbers through a jarring statistic.“Past experience tells us that those who don’t get a job back in the first two years after they lose their job in a recession rarely work ever again in the rest of their lives – with knock on costs in everything from mental health to domestic violence. So, some of the jobs saved now will be returning benefits for a generation.”
Low interest = cheap debt
As for the debt that emerges from managing this scenario, there is an answer for that too. Deloitte suggests that the current spending be treated in the same manner as wartime spending, meaning that its repayment can be withheld until it becomes a small fraction of the GDP.
“We’ll be borrowing about an extra 10% of national income. If we choose not to pay back a single cent of that, the growth in our economy over time will halve to about 5% of national income in 18 years, and then halve again to 2.5% in a further 18 years,” explain the firm’s economists.
The outlook can further be brightened by the fact that interest rates are currently at their lowest ever point in history. “Never in the two thousand years of recorded history of interest rates has it been cheaper for governments to borrow,” says Deloitte. As a result, the interest burden being faced by the Australian government is now half of that faced during the global financial crisis, even though current spending is roughly twice as large.
So the ship is steadier than most would believe, according to Deloitte, and the firm recommends that people focus on saving lives and staying mentally and physically healthy in these unprecedented times, rather than worrying about the cost of covid-19 economic relief packages.
Meanwhile, in the United States, the Senate last week unanimously passed the nation's largest-ever rescue package, a US$2.2 trillion lifeline to stimulate the sputtering economy, care for the under pressure healthcare sector and provide support to entrepreneurs and to people that lost their job.
