Forget AAA rating and focus on growth – QUT economist
The Federal Government should focus on growing the economy and creating jobs rather than preserving Australia’s AAA credit rating, a QUT economist says.
“It is clear that the protection of Australia’s AAA rating is now paramount for the government even if it comes at the cost of jobs and growth,” Dr Willis said.
“Government spending is down from 4.2 per cent to 1.6 per cent with $21 billion in spending cuts, which is likely just the start. But there will be a larger and larger hole in the government revenue, that these cuts are supposed to fill, as consumption and investment fall and we see the end of the construction boom in our major cities.
“With deep cuts in spending, and the economy still transitioning post-mining boom, GDP will fall further.
“But instead of supporting growth, the government is so focused on maintaining its AAA rating that it may overlook the delicate state of the wider economy. The country’s credit rating should not distract from a plan for economic expansion.”
Dr Willis said while it was laudable to try to bring spending under control, a bigger concern was “the lack of government-led stimulus at a time of weak growth”.
The Australian economy shrank 0.5 per cent in the September quarter.
“It is time for the government and the RBA to act together as they did in the GFC,” Dr Willis said.
“While the government can continue on its quest to bring balance back to the deficit, the RBA needs to enter the economy with Quantitative Easing (QE), as monetary policy is now ineffective.
“QE would support the wider economy through giving the states and territories funds to spend on infrastructure projects in exchange for the RBA purchasing state bonds at the present RBA cash rate.
“This would simultaneously provide a stimulus to the economy, lower the currency, and grow revenue to the states and federal coffers allowing the rebalancing to occur.
“The present AAA-led budget cuts are needed post-GFC, to repair the debt and deficit, but without additional growth and jobs there will be higher debt and deficit, not lower, as government revenue will fall not increase.
“There is now an urgent need for a two-pronged attack from government and the RBA to reflate the economy, a task that government cannot do alone with the sword of AAA hanging over it.”
Rob Kidd, QUT Media, 07 3138 1841, email@example.com
After hours, Rose Trapnell, 0407 585 901
Dr David Willis says growing the economy and creating jobs is more important than a AAA credit rating.
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