The Morrison government has pledged to spend four times what Labor spent in response to the global financial crisis. The $194 billion spending since the beginning of March is more then the entire annual defence, education and health budgets combined.
In an interview, Mr Wilson praised the “unprecedented magnitude” of the wage and business packages but warned the spending may not be enough if the crisis drags out to more than six months.
“The community is going to have to pay the price for this fiscal stimulus at some point in time,” he said. “Whether it is increased taxes in future years, it has to eventually be funded.”
Mr Wilson said he would still campaign against the Liberals if they were to adopt exactly the same franking credits policy Labor took to the 2019 election, but said he was open to a more “logical and equitable” change to the current system.
Labor had planned to raise $154 billion over a decade from changes to franking credits, negative gearing, capital gains tax, trusts and superannuation concessions. Eliminating franking credit refunds alone would have delivered $58.2 billion in extra revenue over the next decade, but the coalition successfully mobilised voters against the policy at the 2019 election.
Trade Minister Simon Birmingham said the government was still committed to delivering more than $158 billion in income tax cuts, with the next stage set to begin in 2022. Companies earning less than $50 million will also have completed their tax rate transition from 30 per cent to 25 per cent in that year.
“We absolutely stand by the tax cuts that we’ve legislated for the future,” he said on Wednesday. “They will be a key part of our economic recovery. The spending that’s in the system at present is temporary spending.”
One of the nation’s top bank economists, Westpac’s Bill Evans, said the Morrison government’s $130 billion JobKeeper wage subsidy policy was a “game changer” for the jobs market.
A week ago, Westpac was forecasting unemployment to peak at 17 per cent in June. It now thinks the jobless rate will reach 9 per cent.
Instead of the country losing 1.7 million jobs, the pandemic closedown will cost the nation around half a million jobs.
The minutes of last month’s Reserve Bank emergency meeting, released on Wednesday, show the central bank was pushed into action over real fears the economic impact of the coronavirus pandemic could stretch well into the second half of the year.
The bank took interest rates to a record low of 0.25 per cent and created a special line of credit worth $90 billion to ensure banks loaned money to small and medium sized businesses.
The minutes show the RBA will not take official rates any lower, noting board members “had no appetite for negative interest rates in Australia”.
“The size of the fall in economic activity would depend on the extent of the social distancing requirements, and potential lockdowns, put in place to contain the virus,” the minutes showed.
“It was likely that Australia would experience a very material contraction in economic activity, which would spread across the March and June quarters and potentially longer.”
The cost of the government’s various packages plus the slowdown in the economy means this year’s budget was likely to show a deficit of $100 billion. Next year it is expected to grow to $210 billion.
Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.