The chair of the Reserve Bank, Phillip Lowe has said increased government spending, as well as a possible extension of the JobKeeper stimulus package, are essential in keeping Australia out of a recession.
Lowe’s statements overlapped with reports that Australian banks had deferred more than $250 billion in home and business loans, with the RBA stating that ending the $1500 per fortnight JobKeeper payment too early would be a “mistake” for the country, suggesting it might need to be extended further than September.
“It’s very important that we do not withdraw the fiscal stimulus too early,” Phillip Lowe said. “My main point here is we’ve got to keep the fiscal stimulus going until the recovery is assured… it would be a mistake to withdraw the fiscal stimulus too quickly,” Lowe added. “The level of public debt in Australia, while it’s rising, is still low.”
Mr Lowe said that the Reserve Bank forecasts international travel borders will remain closed for the rest of the year, and added that rolling out an industry-specific JobKeeper package could provide economic assistance to industries hit particularly hard by the pandemic and lower unemployment figures. This, however, remains dependent “on what’s happening in four months’ time,” Lowe said, adding that “it may be many of our industries are getting back to something approaching normal… there’s just tremendous uncertainty.”
Prime minister, Scott Morrison has stated his intention to phase out the JobKeeper program as soon as feasibly possible, citing rising public debt. The JobKeeper program has an in-built three-month review process, and was initially rolled out for a six-month period.
Lowe argues that extending the lifespan of the JobKeeper program is an essential part of keeping Australia from a sinking into a recession.
“It’s too early to say what the economy is going to be like in four months’ time – but if we have not come out of the current trough in economic activity, there will be and there should be debate about whether the JobKeeper program transitions into something else, or whether it’s extended into specific industries, or somehow tapered,” Lowe said.
“I think it’s very important that we don’t withdraw stimulus too early,” he said.
Lowe confirmed the Reserve Bank’s intention to keep interest rates low, stating that the RBA would not consider raising interest rates until inflation figures reach the 2-3% mark. The way the world is at the moment, I have trouble seeing inflation sustainably within 2-3 per cent for quite some time, and I think it’s going to be a long drawn-out process towards full employment. Which means we’re going to keep interest rates where they are perhaps for years.”
“Hopefully that fiscal support will be there for a long period of time. If the economy recovers it can be withdrawn, but if it’s long and drawn out it’s going to be very important that we keep the fiscal support going”
Wayne Byres, chairman of the Australian Prudential Regulation Authority says that it’s important to consider the fact that banks have deferred more than $250 billion in mortgage payments and business loans.
“We can’t keep pretending that everything is in good shape if there are customers who clearly are not going to be able to pay their loans, but clearly we don’t want to put pressure on a large group of customers just at the wrong point in the cycle,” he said.
Mr Lowe also praised Scott Morrison’s call to revamp Australia’s industrial relations system, which we reported on earlier this week, stating he was “very pleased” to hear the news that industry, union and government bodies will collaborate to produce updated industrial relations laws and skills training programs.
“You can waste a lot of money on ill-chosen infrastructure projects,” Lowe added. “If we don’t tackle some of those issues we will just meander along, the economy will be OK, but we won’t return to the kind of growth we have seen in our living standards over the last 20 years.”
Calls for $13 billion cash injection for construction industry
Others, like Master Builders Australia have called for the government to invest $13 billion into the sector that it forecasts will result in a $30 billion boost to national GDP, add around 100,000 jobs and keep unemployment and reliance on the JobSeeker payment at low rates.
Denita Wawn, CEO of the MBA called on the National Cabinet to “implement this independently modelled stimulus package and establish a special task force to fast-track commencement of construction activity.”
“Building and construction is shaping up to be one of the industries worst hit in the long-term by governments in response to the public health emergency of COVID-19. We are asking our political leaders to show the same courage and vision in supporting our industry as they showed in responding to the health emergency,” Ms Wawn added.