On Thursday, chief economist at The Australia Institute Richard Denniss joined in conversation with former treasurer and deputy prime minister Wayne Swan, who served the government throughout the duration of the 2008 global financial crisis (GFC), in order to discuss the lessons that should be taken into the current COVID-19 induced economic downturn.
Mr Denniss of The Australia Institute warned against making direct comparisons between the 2008 GFC and the current economic downturn caused by the outbreak of COVID-19, stating that some of the current government responses would be “inconceivable” in the era of the GFC.
“You have to be careful in evaluating what the government’s doing at the moment, by that rule,” Mr Denniss said.
According to Mr Denniss, the two crises “look the same in the beginning”; however, the government response has varied vastly due to the fact that the driving force of the economic downturn are significantly different.
“[W]e see the economy slowing, we see the government stepping in and spending some money, but it’s inconceivable that in 2009… any government would have stepped in as the economy was slowing, and literally shut down all of tourism and literally shut down nearly all of the food and hospitality industries.”
Mr Denniss stated that the decisive difference between the two eras is that the current economic climate is a direct response to a health crisis and is being directly caused by the government in response.
“This slowdown looks like a recession, but it’s actually health policy, rightly, that’s crushing 20 per cent of GDP at the moment, down to nearly nothing.”
For the former Labour treasurer, Mr Swan, the fact that the COVID-19 health crisis forced the government to shut down a significant portion of its work economy means that, unlike the GFC era, recession is all but inevitable in Australia.
“[W]e’re going to have an even bigger domain shock [than the GFC] for all the reasons that [Mr Denniss] just outlined, with very significant parts of the economy shut down,” Mr Swan stated.
“The truth is that not only is there a big hit to demand and Australia, we’re going to face very tough international headwinds for some time.”
Additionally, Mr Swan stated that the government’s commitment to expensive stimulus packages, and the resulting debt, is a welcome change of tune to the Coalition’s traditionally opposition to any means of fiscal stimulus.
Considering the nature of the economic climate, and that the government has willingly slowed GDP growth through the closure of critical industries and businesses, its response is both surprising and necessary, according to Mr Swan.
Mr Swan and Mr Denniss noted that in the last 20 days, the government has promised to spend over $200 billion in fiscal stimulus, an unprecedented move that is a “surprising response in some ways, but certainly welcome one” to the former treasurer.
Further, Mr Swan noted the importance of Labour’s support in the government as it implements its stimulus packages, as the struggle of non-bipartisan support created a difficult dynamic both inside and outside of parliament amid the GFC.
“The tragedy of [Labour’s] second stimulus [in 2009]... is that it was opposed... on its first run through the Senate... which really sent a shockwave through the country,” he said.
In light of this, Mr Swan praised the current Labour opposition, stating he feels “delighted” in the fact that the party has taken a “constructive role” in getting the current government stimulus packages passed quickly.
“This is an existential moment for our country; people’s lives are on the line,” the former treasurer said.
“And it does require an extraordinary economic response which is free of ideology.”
Mr Swan believes it is the bipartisan support that has encouraged the notion of “Team Australia” and assisted in a united effort to move Australia forward through the crisis.