Title: The role of a higher age pension in stimulating the economy
Abstract: The Commonwealth Government could start injecting tens of millions of dollar into the economy each week by simply increasing the size of a payment such as the age pension. The current slowing in the world economy has raised a number of important issues about the way that the Australian government, and governments in all developed countries, try to manage the macroeconomy. In particular, recent events in the world financial markets have made monetary policy (that is, changes in interest rates) a less effective mechanism for stimulating the economy, because banks are refusing to pass on reduced interest rates to their customers, while other lenders are having difficulty raising funds in an uncertain environment. Besides monetary policy, the other main mechanism for government’s trying to stimulate a slowing economy is fiscal policy (that is, changes to tax rates and the level of expenditure). When the economy is slowing governments can stimulate economic activity by spending more money, thereby increasing the level of demand for goods and services. Fiscal policy is sometimes criticised for taking too long to flow through to the wider economy, yet the Rudd Government recently announced that it wants to bring forward the implementation of major infrastructure projects so that, by the end of the year, the expenditure on selected projects can help stimulate employment and economic activity. If targeted in the right way, however, fiscal policy need not be slow. While it takes months to develop and select major infrastructure projects, and sometimes years before the first sod of earth is moved, the Commonwealth Government could start injecting tens of millions of dollar into the economy each week by simply increasing the size of a payment such as the age pension. While this paper focuses on the economic benefits of an increase in the age pension, the arguments advanced below apply equally to an increase in any government payment for example support for the unemployed, those with disabilities or carers.
Publication Year: 2008
Publication Date: 2008-10-21
Language: en
Type: article
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