The urgent need to address government debt

New research highlights the failure of GFC stimulus spending and the urgent need to address government debt

The Treasury released a paper reviewing how fiscal stimulus used during the global financial crisis in 2008 – 2009 impacted the economy. The paper by economist Professor Tony Makin argues that there is no evidence that this stimulus spending provided any benefit to the economy in the medium term. In addition, the paper suggests a range of other issues. For example, it explains how the timing of the stimulus impacted the effectiveness of monetary policy and consequently damaged a range of sectors such as manufacturing. The paper also examines a range of other critical economic issues such as the federal public debt to GDP ratio and the flow on effects of high public debt on interest rates and investment. Based on this research and these findings, the paper calls on reducing public debt as a top priority of fiscal policy. 

In addition to these findings in the treasury paper, previous research from Centre for Independent Studies (CIS) economist Michael Potter detail why fiscal repair should come from reducing government spending but also the importance of reducing taxes instead of increasing them. Potter points to the current high levels of taxation and near record low levels in business investment, wage growth, national income growth, weak productivity growth and impact of poor international competitiveness as a basis for such a policy approach.

The latest treasury paper is an important counter to the claims being repeated by officials over the past years about the stimulus and about the debt we have accrued. This is yet another vital reminder that our political leaders need to work urgently to fix our debt and budget deficit. It is also another essential warning that our political leaders should not look for easy answers in the form of taxation increases.

You can also see our fact check of claims made of the global financial crisis and stimulus here

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