Should the government take Kevin Rudd’s pandemic advice?

Crikey‘s favourite pen pal Kevin Rudd has unleashed on Prime Minister Scott Morrison’s response to the coronavirus crisis.

Rudd put out a statement over the weekend saying that the Morrison government “has been far too complacent” about the damaging effects coronavirus could have on Australian trading.

“The government’s pandemic plan is a part of Australia’s response. But a targeted economic stimulus is the other, still missing, element we need to avoid the threat of recession.” 

Of course, these days Rudd is a man who cannot pass a reflective surface without telling it how it could better run a country, but does he have a point on this one?

As is frequently the case, the answer is both yes and no.

Independent economist Saul Eslake told Crikey the economic impacts were the result not so much of the coronavirus itself, as of the measures that governments have put in place to prevent and then contain the spread of the virus.

“That’s not at all meant to be a criticism of those measures — it’s entirely proper that governments put people’s health foremost — but it helps to underscore the point that there is perhaps a responsibility on governments to ameliorate at least some of the adverse economic consequences of the measures they’ve implemented to protect people’s health,” he said.

However, Eslake does not believe an economy-wide stimulus like that which the Rudd government deployed in response to the GFC is needed just yet.

“So far, the economic impact has been concentrated on a few sectors of the economy, so it seems appropriate that any fiscal policy response be targeted towards those sectors,” he said.

“Measures with a broader impact — such as cash payments to households similar to those undertaken during the GFC — would probably not be any more effective than cuts in interest rates. They would not be of much assistance to the tourism sector or to universities.”

Richard Denniss, chief economist at The Australia Institute pointed out the Morrison government had already attempted an economy-wide stimulus, with its hundreds of billions in tax cuts.

“If we want to add some targeted assistance to that failed attempt, that would be good,” he said.

Over the weekend Liberal MPs James Paterson and Tim Wilson urged Morrison to rule out bailing out universities.

“Unis have been the worst hit, and if the government is going to intervene, they should be the first cab off the rank, but they clearly don’t have a loud enough voice in the Liberal Party room,” Denniss said.

The Centre for Independent Studies research director, Simon Cowan, has argued the government should reject calls for stimulus, writing in The Canberra Times over the weekend that the argument was a really a proxy debate over the role of government, and that those urging stimulus are arguing “for a far more activist role for government in economic management”:

When put this way, the need for government to explicitly reject the demands for stimulus — not merely on the grounds that stimulus is unnecessary, but that it is also inappropriate — becomes apparent.

Eslake said there was every possibility that the coronavirus could eventually cause a recession (albeit one nowhere near as severe as that which hit Australia in the early ’90s).

“Almost certainly, Australia’s economy will, like many others, have contracted in the current quarter — and depending on how long the various measures designed to contain the virus remain in place, it’s possible that the economy will experience a second quarter of negative growth in the June quarter.”

At that point, a Rudd-style response might become necessary.

“If the economic downturn becomes more broadly-based, or persistent, then there might be a stronger case for a broader fiscal policy response, but we’re not there yet.”