Deloitte: SloMo stimulus creates debt not income

Chris Richardson taking a shot at redemption:

Deloitte Australia has produced the attached document – as a declaration of what Australia needs to do to combat the, in particular, economic and business impacts of COVID-19, and to provide a summary of policy responses across federal and state/territory governments to date.

In a nutshell, the Deloitte Access Economics view is:

  • This is a ‘whatever it takes’ moment for Australia – for large scale, new, and unconventional fiscal and monetary policies.
  • Fiscal measures need to serve three main purposes:
  1. Assist businesses to overcome immediate cash flow issues and financial stress
  2. Support workers to immediately manage their loss of income and associated cost of living pressures
  3. Support those who are having difficulty managing for themselves, who are unemployed, or have reached the age in life where work is a thing  of the past.
  • The building blocks for these measures are largely in place under the current packages across the federal and state and territory governments.
  • However, they largely require both businesses and individuals to take on or defer some type of debt – and therefore don’t ultimately solve the fundamental issues over time, namely, the broken relationships between consumption and production, and spending and income.
  • So, while current measures are designed to support businesses and workers in an economic holding pattern until the pandemic is controlled, this needs to be done without producing perverse economic impacts over time and with a view to recovery.
  • Fiscal measures designed to support recovery will need to wait until the pandemic is controlled, though planning  for them must begin now.
  • What is needed is reassurance for Australians that they  can, and should, stay at home and not worry about lost incomes, because there will be policies to make up for the losses once the public health crisis is brought under control.

Yep. The full plan is here.

We favour UBI. Simple, universal and quick. All the things that SloMo is not.

David Llewellyn-Smith
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  1. People who’ve never had it tough, never had a real job (no, marketing is not a real job, Scotty), never started or run a small business, deciding policy – sh!t what do you expect. Professional pollies – dog help us.

  2. “Simple, universal and quick. All the things that SloMo is not.”

    Scotty from marketing is the very definition of simple.

  3. They’re just giving back what they take in tax, just really inefficiently. The only way they can stimulate is stealing wealth from the future.

    • Ronin8317MEMBER

      It’s not stealing from the future when there is no intention of ever paying back.

      • All debts get paid Ronin. Your only task, accepting that statement as truth, is to figure out who does the paying …

    • My kids are ecstatic — I’ve explained they’ll be working to pay back large debts incurred long before their time, the benefits of which accrued mainly to the Boomers. They really can’t wait to get into the workforce and do their bit.

      • Gen X in fact has been the biggest recipient of government largese over the last 25 years. Only 1/3rd the smaller boomer generation would have had the handouts, free higher education, neg gearing handouts and not forgetting the massive superannuation tax concessions that most boomers only got for less than half their working lives (compare the compounding differences between 20 years and 40 years tax free investing). I see ScoMo as being the archetypal Gen X personality.

        • Steve, I hear what you’re saying, but the angle I see this from is really the money supply boost that has occurred from the assumption of the $600b+ of Commonwealth debt (plus all State debt), which has really been the key driver of property prices, which the Boomers have been the chief beneficiaries of. First in, best dressed.

  4. Jumping jack flash

    “…they largely require both businesses and individuals to take on or defer some type of debt – and therefore don’t ultimately solve the fundamental issues over time, namely, the broken relationships between consumption and production, and spending and income.”

    stone the crows!
    People are catching on. Maybe they always knew but didn’t think it was a problem? Maybe the cat is out of the bag and it simply doesn’t matter if everyone knows how flawed the fundamentals of the New Economy are? Neo Keynesianism, neo Liberalism, whatever it is, it simply cannot ever work at this kind of level. QE kind of proves this point.

    Nonproductive debt, ie debt spending on consumption doesn’t contribute a single cent to the economy, in fact it is a net drain on the economy by the exact amount of the interest payable on the debt.

    Mortgage debt is a prime example of nonproductive debt dressed up like productive debt, but it can only ever look productive if more debt is added to pay the expected returns… or, more people are required to “buy in” and take on the ever-larger amounts of debt that are required to pay the expected returns… hey, wait a minute, that model sounds strangely familiar… Wonder where I’ve heard of it before?

    The quest for debt then undermines the proper functioning of the economy. Those “relationships between consumption and production, and spending and income”. Rinse and repeat enough times and you get the same problem affecting the entire globe.

  5. Arthur Schopenhauer

    The whole package is bs. If you pay salaries, there is very little in it to help keep employees on.
    I spent the day chasing overdue invoices, unpaid by large companies. The suspended insolvency laws are being used to avoid paying small companies. (Who coulda…)

  6. Most of my customers are manufacturers in Western Europe. Each country handles their situation similarly. For example in Belgium, the manufacturer has reduced workers to 2 days per week in line with their requirements of current low demand. The other 3 days, the workers are put on’ temporary unemployment ’. The government pays 70% of the salary for these 3 days. When the crisis eases, the manufacturer directly employs the workers again. Thus taking them off the temporary unemployment.
    The solution gives the manufacturer easy access to the same specifically skilled workers they had prior to the crisis. The workers still have the jobs they presumably wanted. The result is less ongoing cost to government as the economies can re-group faster. I haven’t costed it but if it can be afforded by those countries then surely it can be done by ours. Given the data the ATO has on employee salary, it must be a very simple plan to put in place. These European governments installed this plan (or honed it) during the GFC. Now they simply had to revisit it. It’s not good enough for the government to say that a plan like this (or a similar plan like the Macro suggested UBI) cannot be developed quick enough. That will be the excuse in every crisis. They just need to do something useful and real then do it. Maybe not perfect this crisis but it will work well enough. Then it will be ready for the next one.