Economists back Labor on economic stimulus

Economists "convinced" the Federal Government was right to go into debt in response to financial crisis

By Brad Gardner | August 17, 2010

The Federal Government’s decision to go into deficit in response to the global financial crisis saved Australia from recession, according to some of the country’s leading economists.

In an open letter signed by 51 economists and 16 other signatories, the federal Labor government has been praised for handing out $900 payments, building school infrastructure and increasing the First Home Owner Grant scheme.

Money was also brought forward for transport infrastructure projects when the crisis hit, which the economists say will benefit Australia through increased productivity, taxable capacity and the ability to repay public debt.

"We…are convinced by the evidence that the coordinated policies of the Australian Labor Government have prevented the Australian economy from a deep recession and prevented a massive increase in unemployment," the letter reads.

According to the letter, the infrastructure investment provided better and greener homes, better schools and prevented a sudden fall in house prices.

The economists agree that Australia’s deficit has been in part due to a rise in unemployment benefits and decreased tax revenues.

The letter also highlights praise for Australia’s financial position by the International Monetary Fund and the Organisation for Economic Cooperation and Development (OECD).

"In almost all the OECD countries there has been a massive increase in unemployment and in budget deficits. In Australia both have been trivial," the letter says.

"Just as a major corporation goes into debt to invest in its stock of capital, so does a government. Just as many households have a debt to a bank or mortgage company, so does a government."

Prime Minister Julia Gillard has faced criticism recently from the Opposition over the level of spending, with Opposition leader Tony Abbott accusing the Government of wasting taxpayer money.

The letter was signed by academics from universities across Australia, such as associate professors John Nevile and Raja Junankar and professors Harry Bloch and Steve Dowrick.

The letter also contains 16 other signatories from universities and unions made up of lecturers, economists, consultants and professors.

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