Transcripts

ECONOMIC STIMULUS PACKAGES - WHERE DOES THE MONEY COME FROM?

April 01, 2020

RICHARD KING, HOST: Well boy oh boy certainly the money’s being thrown left, right and centre and we were talking yesterday about the Federal Government’s $130 billion JobKeeper stimulus package and a number of you, our listeners, have gone ‘where does the money come from?’ We had quite a few of you going ‘oh we are going to get it from China like the virus’.

KIM BAUER, HOST: No we do, they think it’s a conspiracy; that this whole thing was started by China and now they’re giving money to the world and are going to be getting it back. It just doesn’t make sense but we have to get to the bottom of it.

KING: We do, and that’s why we thought we’d talk to the Federal Member for Shortland whose background is economics. That’s Pat Conroy, he’s on the line, good morning Pat.

PAT CONROY, FEDERAL MEMBER FOR SHORTLAND: Good morning guys, how are we?

BAUER: We’re pretty good thanks and we hope you are too. But we better start with the figures because we’re losing track rapidly. It was $130 billion yesterday, $66 billion the day before, how much have we actually thrown at COVID-19 so far?

CONROY: So the Federal Government has announced three packages worth about $213 billion, and on top of that the Reserve Bank has announced its own measures to support banks and to support businesses worth about $90 billion, so we are looking at over $300 billion worth of measures. To put that in context, the size of the Australian economy is $2,000 billion – $2 trillion – so the total package is about 15 percent of our annual Gross Domestic Product or income.

KING: One of our listeners told us there’s a Lego model of Parliament House in Canberra and there’s actually a Lego money tree out the back, but that’s not where the money’s coming from Pat.

CONROY: No, so what will happen is the Government will borrow this money, it has a special agency that goes to the market and says ‘who wants to lend the Government money?’ and they’ll do that over the next few months. And that will be a variety of people, people like superannuation funds in Australian, pension funds overseas, other governments, insurance companies. And Australian Government debt is seen as a very safe asset to buy, so we will have no shortage of takers trying to lend to us.

KING: When you say we are seen as safe, why are we seen as safe?

CONROY: Well to put it in context, after the crisis, these packages announced will mean that Australia’s Government debt to GDP – so how much the Australian Government owes as a percentage of the economy – will be about 26 percent. So it will take 26 percent of our annual income to pay off the debt. The average around the developed world is well above 75 percent, so even after this, we will have about a third of the debt of other countries. Now it doesn’t mean that this automatically is a good thing - we need to make sure the money is spent effectively to save the economy – but just as during the Global Financial Crisis, it’s much better to spend this money and keep people in jobs than to deal with the years of crippling recessions, the years of people being on Newstart and the social dislocation of that unemployment. With all of these big recessions if they occur, it’s much better for the Government to be active early to save jobs than to try and rebuild afterwards.

BAUER: Pat, a lot of our listeners are older and they’re seeing their superannuation disappear pretty quickly. You just mentioned some of the superfunds will buy into this and lend the Government the money. What sort of return are the superfunds going to get on lending the Government the money?

CONROY: It’s not going to be particularly high because we are seen as a safe asset. So for example, the Government issued some debt earlier this year where someone agreed to lend the money at 0.89 percent interest per annum, so less than one percent per annum. So this isn’t going to provide a massive income stream for superannuation funds, but on the other hand it also means that the actual interest rate the Government will be paying won’t be that high. So that will be a challenge, and obviously everyone’s superannuation funds are taking a hit because of what’s occurred. We saw the same thing during the Global Financial Crisis. The markets will rebound, and that’s very important that people have confidence in our super system, but obviously it’s pretty ugly at the moment.

KING: On 2HD it’s 17 past seven, our guest is the Federal Member for Shortland Pat Conroy. When the $130 billion JobKeeper package was announced, I heard a commentator on Monday night suggesting ‘oh the Government’s throwing everything at this now, they might not be able to do this a second time’, in other words they might not be able to raise more money again quickly. Do you think that could be a problem if this situation continues?

CONROY: Well the total amount through the three packages is the equivalent of half of the Government’s annual spend, so it’s a very large amount of money. Our main criticism is that it’s been too slow. We support it, and we think there are good measures, but it’s been a bit slow given the fact that business and unions and Labor have been calling for the wage subsidy for two or three weeks now, and there’s still holes in it around casuals and renters and looking after our New Zealand families. It is a big package. Look I think the Government could probably go back to the well a fourth time if they needed to, but I certainly hope they don’t need to because that would be a very massive intervention. If $130 billion is the first stage of the second package, then we are facing some pretty dire circumstances.

BAUER: Will we ever see a surplus again?

CONROY: I think eventually we will, well hopefully with good management. But look, this level of debt is sustainable. We want to get to a balanced budget and then we want to get into a surplus so we have some money if there is another crisis down the path. But the main lessons from the Global Financial Crisis are if you look at countries that intervened early to save jobs like Australia versus other countries who tried to protect their surpluses. Those countries that didn’t intervene and didn’t try and protect jobs to protect the Government’s budget, they are in a much worse financial situation. Because what happens is, if you have mass unemployment year after year after year, you don’t have taxes coming through into the Government, you don’t have that revenue, so your budget bottom line is actually in a much worse situation, and you’ve got the human misery of millions of people unemployed. So that’s why we intervened so quickly and heavily during the Global Financial Crisis, and that’s why we support the Government’s actions, because every economist worth their salt will say it’s much better to be active, to be getting money into the economy when people’s confidence is shaken, then to try and hold it out in a mythical hope of holding onto a surplus. Because the surplus is gone no matter what happens with Government spending because companies are laying off people. The Government predicts we will have an additional one million people unemployed without taking action, so that would have destroyed any surplus hopes even before you looked at a package of this size.

KING: And on a lighter note Pat, we’ve been inviting from our listeners this morning suggestions about things that people can do if they’ve got their children at home like you have and are homeschooling, maybe things they did when they were children. I mentioned building cubby houses out of blankets and things and chairs, anything that you can remember as a child that might be appropriate these days?

CONROY: Well we like a game of Monopoly. My wife is a nurse so two days a week I am the homeschool teacher, and then the other five days I am working, so we like a game of Monopoly to break it up. My six year old daughter is as competitive as I am so it leads to a few tensions around the table, but it’s a good way of teaching people about economics in a way that people don’t think about it.

BAUER: Well thank you for that and good luck with the homeschooling.

CONROY: Thanks for that, have a good morning.

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