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Chief economist update: Budget me this Batman

"If not for you
Babe, I couldn't even find the door
I couldn't even see the floor
I'd be sad and blue
If not for you"

- Olivia Newton-John

Yes Olivia, it's the Budget. There might be precious few worrying about the implications of the Morrison government's historic fiscal expenditure - amounting to 11% of GDP this fiscal year -- on the nation's debt - that would reach more than a trillion A-dollars over the next three years - and the outlook for the Australian economy.

For sure and for certain, this massive spending will need to be recouped - through higher taxes or reduced social welfare spending or both -- in the long run. But to quote John Maynard Keynes - he who prescribed to the world exactly what governments around the world are doing right here, right now (Keynesian economics) - "in the long run we are all dead".

Were it not for the government's largesse - JobKeeper, JobSeeker, HomeBuilder - us, Australians all, would be "dead" now or are dying ... or our economy is.

This is evidenced in recent stat and survey indicators before the Budget reveal.

The Australian Industry Group's (AiG) performance indices provide a snapshot of the country's manufacturing, services and construction sectors in the month of September. Manufacturing continued to weaken - down to a reading of 46.7 in September from 49.3 in the previous month as renewed coronavirus-induced restrictions in Victoria resulted in a slowdown of orders and reduction in new orders.

Likewise, the services industry index dropped to 36.2 from 42.5 in August, again due to the re-imposition of restrictions in Melbourne. The AiG performance of construction index improved (but remained at a level indicating contraction) to 45.2 in September from 37.9 in the previous month, aided by the Morrison government's "Homebuilder" programme.

The latest NAB business survey showed that Australian business confidence improved but remains where the net balance of responses show pessimists continue to outnumber optimists -- minus four in September from minus eight in the previous month. Business conditions also improved but only to zero from minus six in August.

The government's response has also allowed the Reserve Bank of Australia (RBA) to conserve its almost depleted ammunition.

The RBA kept domestic monetary policy unchanged at the conclusion of its October 6 meeting.

It may have disappointed financial markets' expectations for a lowering of the official cash rate from a record low 0.25% to 0.1%, and its three-year bond target and Term Funding Facility (TFF) to below 0.25%, but the Morrison government's cash splash negated any unintended consequences.

Besides the RBA's October decision followed the Board's announcement in September, increasing the size and extending the duration of its TFF programme.

But make no mistake, the RBA remains resolute in keeping us "alive" now.

In his statement, RBA governor Philip Lowe stressed that: "The board is committed to do what it can to support jobs, incomes and businesses in Australia", "views addressing the high rate of unemployment as an important national priority" and therefore, "will maintain highly accommodative policy settings as long as is required and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3% target band."

Because of them, we could now "see the floor".

Read our full COVID-19 news coverage and analysis here.

Read more: HomebuilderJobKeeperJobSeekerAustralian Industry GroupPhilip LoweReserve Bank of Australia
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