Wednesday, November 25, 2020
Australian Federal Government's Response

In response to the economic crisis the Australian Federal Government and the Reserve Bank of Australia are borrowing billions to soften the impact of the pandemic-induced downturn.

 

Much of this money is either being handed out directly through income support programs like JobKeeper and JobSeeker, government stimulus packages (including loans for companies in financial distress) or lent to banks to support economic activity.


During any downturn there is inevitably a loss of confidence in the community. Businesses and individuals are more reluctant to invest or take out new loans. In such an uncertain environment, banks tighten lending criteria – people feel less confident they can repay loans whilst banks experience reduced serviceability of loans and an increase in bad debts.


Invariably in such an uncertain environment investment dwindles further and the continuing contraction leads to rising unemployment and underemployment and economic hardship.

 

Clearly, as Michael Stutchbury underlined, we are living in quite extraordinary times characterised by great uncertainty and change.