josh-frydenberg-and-scott-morrison budget
Treasurer Josh Frydenberg and Prime Minister Scott Morrison (Image: AAP/Mick Tsikas)

One by one, overseas governments — conservative, progressive, centrist — are laying down the markers for the size of the stimulus response needed to deal with the threat of global depression.

New Zealand’s Jacinda Ardern went hard yesterday, announcing a package worth 4% of GDP. Donald Trump — with the apparent support of both GOP and Democrat leaders in Congress — spoke of a US$1 trillion package, which is around 4.5% of US GDP.

The Johnson government in the UK revealed a package of business support measures worth a gobsmacking 13% of GDP, although much of it is in the form of loans, rather than handouts.

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Spain, similarly, has announced a package of loans and direct stimulus worth 14% of GDP. France is injecting 2% of GDP directly into the economy and has announced a loans package worth more than 12% of GDP.

Meantime, we wait to see what the Morrison government’s next package will be. “We’re moving with great haste,” Morrison said this morning, but there’s no indication of when the new package will be unveiled as days tick by and the damage accumulates.

It’s hard to believe that it’s not even a week since the last one, but a week is now truly a lifetime, and many lives, in politics. Boris Johnson’s government unveiled a stimulus package last week and its budget, and has already launched a second package.

A package worth 5% of Australia’s GDP, along the lines of Trump and Ardern, will be $100 billion. That has to be the bare minimum; even something twice the size of last week’s effort will disappear without trace.

Morrison’s comments this morning suggested the government was focusing on a “safety net” for individuals and for small business, but remember last week’s package evolved rapidly from some minor help for affected businesses to a large cash splash and wage subsidy scheme.

We also have to wait another day for the Reserve Bank to reveal its proposed intervention.

The US Federal Reserve, after Sunday evening’s dramatic moves, announced another intervention overnight, committing to purchase corporate bonds (known as “commercial paper”) to ensure that businesses can continue to borrow money. The Fed could lend up to US$1 trillion, although it’s not expected to need that much to keep American businesses liquid.

The Fed’s move has removed the biggest fear in financial markets, that companies exposed by the freezing of the short term commercial paper market could collapse and batter banks, money market funds (a major source of funding for commercial paper) and other investors with multi-trillion dollar losses. This move, rather than rate cuts or Sunday’s injection of liquidity, may turn out to be the crucial moment in steadying the global financial system.

On both fiscal and monetary policy, Australia is now looking very much behind the game. Policymakers are taking their time while other governments and central banks are acting now — and not letting the perfect be the enemy of the good. They are assuring voters, investors and businesses that they’re prepared to stave off depression at any cost.

Morrison was much blunter and clearer in his media conference this morning as he reeled off a long list of new quarantine measures, scolded Australians for panic buying, told them not to travel overseas and explained why schools must be kept open.

It was a welcome change of tone from the man who just a few days ago was talking about how much he was looking forward to going to the footy, and much more the sort of leadership the country needs right now.

But, as yet, it hasn’t filtered into the government’s economic response, nor that of the Reserve Bank. By the standards of the financial crisis 12 years ago, both the government and the Reserve Bank have moved rapidly. But it’s no longer 2008; the viral contagion is real, not metaphorical, the media is a bubbling cauldron of rumour on Twitter, Facebook and WhatsApp, not the dominant of the 2000s.

There is one upside to the delay: our policymakers can at least consider what’s being launched offshore, get a sense of scale and of the different forms of stimulus being deployed, co-ordinate and complement it where possible, and structure — and hopefully expand — their response accordingly.

They can no longer go early, so surely the government and the Reserve Bank must go hard.

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Peter Fray
Peter Fray
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