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GFC stimulus harmed economy, report says
DECEMBER 9, 201612:29pm
Treasurer Wayne Swan delivering the 2008 budget.Source:News Limited
Frank Chung
news.com.au
IT TURNS those $900 cheques weren’t such a good idea after all.
The former Labor government’s $100 billion stimulus package during the GFC has been slammed in a
scathing new Treasury-commissioned report, which argues the cash splash actually weakened the economy and damaged local industry by overvaluing the exchange rate.
The report, authored by economist Tony Makin from Griffith University, says the Rudd government's fiscal stimulus was “unnecessarily large” and “misconceived because it emphasised transfers, unproductive expenditure such as school halls and pink batts rather than tax relief and/or supply side reform”.
The latter occurred in New Zealand, where “marginal income tax rates were reduced, infrastructure was improved and the regulatory burden on business was lowered”.
“In sum, fiscal stimulus was not primarily responsible for saving the Australian economy from a narrowly defined recession in the March quarter of 2009, but a combination of lower interest rates, a major exchange rate depreciation, strong foreign demand for mining exports, especially from China, and a then more flexible labour market,” the report says.
“Fiscal stimulus later weakened the economy by strengthening the exchange rate and reversing the contribution net exports made to aggregate demand.
SURE MAKES $120m LOOK LIKE CHICKEN FEED
