Fiscal Responses and Future Challenges
Edited by John Wanna, Evert A. Lindquist and Jouke de Vries
Chapter 4: Australian and New Zealand responses to the ‘fiscal tsunami’ of the global financial crisis: preparation and precipitous action with the promise of consolidation
Australia and New Zealand initially confronted the global financial crisis (GFC) of 2007–12 from positions of economic and fiscal strength. Their national governments took precipitous remedial action as the crisis swept through domestic markets, and then moved gradually and tentatively to reconsolidate their financial position in the wake of the crisis. The crisis tested both the system of financial regulation and the budgetary system in both countries. It caused some months of great turmoil at the macroeconomic level, resulting in just one quarter of negative growth for Australia and negative growth of five quarters for New Zealand. Both governments guaranteed financial deposits in banks and underwrote lines of credit for financial institutions and other at-risk commercial sectors. They stimulated their economies in classic Keynesian mode, massaging effective demand and sustaining business and consumer confidence (although direct cash injections to citizens were much more evident in Australia than New Zealand). Both believed the crisis could be weathered by allowing short-term cyclical deficit spending to occur, but also found that structural deficits eventuated.
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