EY chief economist chief economist Jo Masters said an extra $750 support payment, worth $3.4 billion, would also smooth over an income cliff facing the country as support measures such as JobKeeper and the coronavirus supplement are wound down.
“We know that the economy will be weaker and unemployment higher without additional fiscal stimulus, and that spending needs to both ease the income cliff and start to boost aggregate demand in the economy, which is what will drive jobs,” she said.
The JobKeeper wage subsidy was reduced on Monday from a flat $1500 a fortnight to $1200 for people who work more than 20 hours a week and down to $750 for those working fewer than 20 hours.
The coronavirus supplement, being paid to about 2.2 million people, was cut last week by $300 a fortnight in a move estimated to cut total government support by more than $700 million a month.
Ms Masters said while the government’s measures had delivered a much needed cushion to the economy, it had to use extremely low interest rates now to build growth over the longer term.
“Low interest rates open policy choices and we know that the economy will be weaker and unemployment higher without additional fiscal stimulus,” she said.
Separate research from new economic thinktank the Blueprint Institute released on Tuesday found the government needs to go further in terms of direct financial support for taxpayers, suggesting $1000 cheques to millions of Australians.
Blueprint estimates giving $1000 to people earning less than $100,000, plus $500 for each of their dependents, would cost about $15 billion.
It also backs an extra $4 billion to go into a further $750 cheque to those on welfare, including age pensioners, while also pulling forward the government’s stage two tax cuts due to begin in mid-2022.
The total cost of the three measures would amount to $47 billion or 2.4 per cent of GDP.
Blueprint chief economist Steven Hamilton, a former economist with the federal Treasury, said apart from directly supporting the economy now, the government also had to “ignite the next boom” by investing in research and development.
He said improving access to capital for young and fast-growing firms could be done by replicating programs overseas such as Israel’s Innovation Fund.
“To pay down this debt we will need a much more efficient tax base and much faster growth,” he said.
“This will require wide-reaching reforms that were necessary before the crisis and are now more critical than ever before.”
Mr Frydenberg flagged on Friday that the October 6 Budget will contain support to get people into jobs and businesses investing in the economy again.
“In the Budget, you’ll see a number of measures which are designed to get more people into work, that’s by boosting aggregate demand, that’s by boosting business investment and that is by supporting the economy to grow,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.