Global consulting firm EY is warning the Australian economy is in urgent need of more stimulus, and is encouraging the Federal Government to green-light more “shovel-ready” infrastructure projects.
Key points:
- EY chief economist Jo Masters says small projects could create 5,000 jobs
- She says regional areas would benefit from much of the economic boost
- Treasurer Josh Frydenberg says nearly half the $100 billion infrastructure package would be spent over the next four years
With Australia’s economic growth at its lowest level in a decade, economists are urging politicians to move quickly.
“The economy is losing momentum quite quickly. The growth base is narrowing, the headwinds from offshore are rising,” EY chief economist Jo Masters warned.
Even if the Reserve Bank cuts official interest rates again tomorrow, she doesn’t think it will be enough to stimulate the sluggish economy.
And while the RBA and Federal Government agree infrastructure spending will be an important stimulus, Ms Masters believes it is small, so-called “shovel-ready” projects that will be most effective.
“Large infrastructure has quite a long lead time, and we’re already facing capacity constraints, so we’re looking at what else we can do,” she said.
EY’s modelling shows a billion dollars’ worth of maintenance and repair work, like a fresh coat of paint on a hospital, would create more than 5,000 jobs and inject an extra $800 million into the economy.
“And I think one of the advantages of small-scale infrastructure — maintenance and safety-type infrastructure — is not just that it’s relatively easy to roll out, but also importantly you can roll it out in regional areas, and also it’s quite labour intensive and of course creating jobs is very important in a slowdown,” she told the ABC.
Government to spend billions in four years
In a statement to the ABC, Treasurer Josh Frydenberg pointed out that nearly half the Government’s $100 billion infrastructure package would be spent over the next four years.
And he also said Prime Minister Scott Morrison had written to state and territory leaders to work together to look at projects that could be delivered ahead of time.
Infrastructure Australia advises all levels of government on how and where to invest.
Its executive director of policy and research Peter Colacino has identified one major hurdle for getting the green light for some projects.
“NSW councils have identified a $2.2 billion local road maintenance backlog, so clearly there’s a challenge in NSW,” he said.
A Transport for NSW spokesperson told AM the NSW Government was committing $1 billion to fixing local roads and country bridges over the next five years to support councils, and would continue to work with them to review how assets were managed.
And with uncertainty over potential economic shocks from Brexit and the US-China trade war, Ms Masters said EY’s modelling also showed that bigger tax cuts for low-income earners would give the Australian economy more support.
“The expansion of the low- and middle-income tax offset is one example of that where it’s focused on low- and middle-income earners who tend to spend more than they save,” she said.
“They have a higher marginal propensity to consume.
“You can also stimulate through lump sum payments, but also obviously through income tax and changing weekly or fortnightly pay packets.”
Topics: federal-government, business-economics-and-finance, australia