But for Kennedy, the query proved pivotal.
“I actually went back and read the paper again … and started to think, ‘If this goes big, if this goes everywhere, what is this going to look like?’ And so that really switched it on for me.”
Appointed to helm Treasury in September final 12 months to function the Morrison authorities’s most trusted financial adviser, Kennedy has performed a central function in designing Australia’s fiscal response to the coronavirus recession, together with costing the historic JobKeeper wage subsidy, which attracted early criticism for lacking the mark by some $60 billion.
Just two weeks out from the federal finances, in his first interview as secretary, Kennedy has spoken on the “Work with Purpose” podcast of the Institute of Public Administration Australia, of which he’s president of the ACT department.
Backing requires extra stimulus within the finances, Kennedy says the finances can be targeted on “jobs, jobs and more jobs”.
“There is no doubt there is going to be more need for aggregate demand,” he mentioned.
“There is more pressure on fiscal policy to support this economic recovery than in living memory – possibly ever really – because of where we are, near the zero lower bound with interest rates.”
Joined on the podcast by Commonwealth Bank CEO Matt Comyn, Kennedy says the 2 males have been in common contact because the disaster has unfolded.
“We clicked,” says Kennedy. “A couple of people had suggested [business] people who are really good to talk through the issues, who take a really genuine interest in public policy. And Matt was one of those people.”
Comyn recollects a personal assembly between a number of different financial institution CEOs and the governor of the Reserve Bank, Philip Lowe, after the central financial institution slashed rates of interest to shut to zero, which actually introduced residence the seriousness of the state of affairs for him.
“I think Steven was on video conference,” recollects Comyn. “I think the Governor opened up with words along the lines of ‘This is a national emergency’.”
Australia’s greatest financial institution CEOs had already spent a lot of March assembly in personal – generally with the Treasurer; at all times with the assistance of competitors attorneys and regulators to make sure no collusion – to organize for a large program of mortgage deferrals introduced in late March.
Meanwhile, Treasury and the federal government spent March designing and unleashing a number of waves of multi-billion greenback stimulus packages, culminating within the historic JobKeeper announcement in late March.
“The pandemic is just a constant sort of uncertainty, unknown scenarios, if you like,” recollects Kennedy, who suggested the Rudd Government throughout its response to the 2008 disaster. “So it’s fairly totally different. It begins quick … a lot quicker than the GFC … after which it simply retains going. So we’re operating as much as a finances on the sixth of October and we’re nonetheless responding.
“I keep in mind seeing Matt at our workplaces – I feel he referred to as in, with some colleagues in March – and I do keep in mind saying to him, ‘This is going really fast’ and he agreed, and it did.”
Some criticised the federal government for shifting extra slowly than different international locations to implement a job subsidy scheme like JobKeeper.
Kennedy says it was his agency recommendation to focus first – not less than initially – on boosting JobSeeker (the previous Newstart cost): “The reason I was very focused on JobSeeker first was, the system was there and we could scale it immediately… The argument I put at the time was not only does it stabilise the economy, but it stabilises the community, because they understand effectively a basic social wage is thrust into the economy.”
As the necessity for a broad wage scheme turned obvious, early work was performed internally by Treasury deputy secretary Jenny Wilkinson and senior government Mark Cully.
In the top, that they had about 4 days to show round and value the coverage.
In another international locations, wage schemes have been mounted at a proportion of an worker’s pre-existing wage. But in Australia, Kennedy strongly urged the federal government to go for a flat cost of $1500, which might be simpler to implement.
“We will not be in any type of ‘set and forget, okay, we are through the shock, it is all over, let’s simply stimulate the financial system and away we go. We are literally not by way of it.”
Australian Treasury Secretary Stephen Kennedy
This meant a pay rise for some staff. But Kennedy has no regrets.
“Yes, some money would spill at the corners. But I think if you spend a lot of time trying to track down that type of exceptional case, then you will be too late in delivering the policy response.”
Kennedy additionally urged the subsidy ought to go to all staff in corporations affected by COVID-19, not simply stood down, or furloughed, staff, as in different international locations.
In late May, it was revealed Treasury’s unique costing of the scheme at $130 billion was too excessive. The price in May was put at nearer to $70 billion – a $60 billion miss that was described by media on the time as the most important budgeting blunder in Australian historical past.
How did that really feel?
“Look, I did not feel good, because obviously that is a Treasury responsibility to do that costing, advise the Government, for the Government to make it public.”
But the unique costing was primarily based on a harsher and extra rapid European-style lockdown, which didn’t come to go, explains Kennedy.
“Perhaps, upon reflection, I should have been better in my communication around…the sheer uncertainty about how these things would cost; how they would wax and wane with circumstances as they unfolded.”
As it seems, Melbourne’s lockdown has dealt an financial physique blow nearer to the unique state of affairs, and the value tag of JobKeeper is now again above $100 billion.
“Roughly speaking, if we had shut down in a similar way, then our original costing would have flowed through, to be quite honest, at roughly the right level.”
With Treasurer Josh Frydenberg set to ship a federal finances on October 6, Kennedy says the necessity for additional stimulus is evident.
“There is more pressure on fiscal policy to support this economic recovery than in living memory, possibly ever really, because of where we are near the zero lower bound with the interest rates.”
“The top three priorities of any budget at the moment are jobs, jobs and jobs.”
While backing the necessity for finances measures to spice up the financial system, Kennedy says different, extra nuanced insurance policies are additionally wanted.
“There is no doubt there is going to be more need for aggregate demand. But we also need to make sure every other form of policy – be it around credit provision, be it around dealing with business, the creation or even insolvency of business – every form of policy that helps the economy adjust to generate more jobs, not just money, has to be switched on as much as possible, to generate as many jobs as possible.”
Amid speak of a “fiscal cliff”, as non permanent help funds are withdrawn and banks begin to restart mortgage repayments, Kennedy says family financial savings run up throughout COVID-19 will stay an essential cushion in coming months.
“We have actually put an enormous amount of money into the pockets, into the balance sheets effectively, of households and businesses… So it’s not just the cliff. The money will continue to flow out in a smoother way than what the fiscal estimates suggest.”
With fears of a property value bust additionally constructing, Kennedy urged Comyn and different financial institution CEOs to be versatile in restarting mortgage funds. “It is definitely an issue that we will need to watch carefully.”
Comyn mentioned banks couldn’t proceed mortgage pauses for all clients “indefinitely”, though further four-month reprieves are on supply. “There are definitely going to be some very difficult circumstances,” says Comyn. “We…have to realistically assess every customer at an individual level, and ensure that they will be in a position to restart, and if they are not, then there is no point in just kicking that can down the road.”
Overall, each males say the success of state and federal authorities in managing the well being disaster and the unfold of COVID maintain the important thing to future restoration.
“We have to remain nimble, if you like,” says Kennedy, “and conscious that we proceed to dwell with a pandemic for now. It is extremely essential that the well being aspect of it really works successfully. Obviously, a state like NSW has achieved very nicely, and we’re not in any type of ‘set and forget, okay, we are through the shock, it is all over, let’s simply stimulate the financial system and away we go’.
“We are literally not by way of it.”
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Jessica Irvine is a senior economics author with The Sydney Morning Herald.