An OCR cut isn't dead after all

Every economist polled before today's Monetary Policy Statement (eg here and here) said there'd be no change to the Official Cash Rate (OCR). Quite a few (including me) thought it's unlikely that any further cuts are on the table (and that the option of going to a negative OCR might even be taken off the table by the Reserve Bank); that the next move will be up (likely preceded by winding back some of the unconventional monetary policy tools); but that it's still necessarily a longish way away. Personally I was also wondering what weight the Bank would place on the December higher than expected inflation rate and the very much lower than expected unemployment rate.

The OCR did indeed stay at 0.25%. Taking it to zero or into negative territory has not, however, taken off the table: quite the contrary. The Statement said (p3) that it's now operationally do-able ("the operational work to enable the OCR to be taken negative if required is now completed") and the minutes of the latest policy meeting said (p6) that "The Committee agreed that it was prepared to lower the OCR to provide additional stimulus if required". There was even a section on pp26-7 headed "A zero or negative OCR would provide additional monetary stimulus, if required" and went into how it might work out in practice.

Adrian Orr was asked at the media conference about the pre-MPS expectation that a lower OCR might be sidelined: he said the bank prefers to maintain a full suite of options against whatever might befall down the track. Fair enough: personally I was starting to wonder whether a lower OCR catalyst might be the need to defuse any unwanted appreciation in the Kiwi dollar. 

The Bank is rightly being cautious on reading too much into the December numbers: "How long the recent recovery in inflation and employment can be sustained is highly uncertain ... Our baseline scenario for the economy, while starting from a stronger position than assumed in November, is subdued. Significant monetary stimulus remains necessary to confidently and sustainably meet our inflation and employment objectives" (p7). 

So there will be "a prolonged period of time to pass before these [inflation and employment] conditions are met" (p6) and "Meeting these requirements will necessitate considerable time and patience" (p3). How long? The Bank publishes a measure called the "unconstrained OCR"* which has a go at measuring the overall degree of stimulus: its latest one (p41, reproduced below) shows the existing level of stimulus increasing just a tad during the rest of this year, but gradually becoming less stimulatory (though still strongly supportive) through 2022 and into 2023. When will monetary policy be back at "neutral"? If (as Figure 6.4 on p50 suggests), a "neutral" OCR is something like 2%, chances are that we won't see one till 2024 or beyond.

There's usually some interesting one-off stuff in each Statement. There's a box (pp19-21) on current conditions in the Māori economy, and this new visualisation (p14) of conditions in the labour market, which does a nice job of bringing together the various ways you might look at the market to figure out how close you are to maximum sustainable employment. 

*In the May 2020 Statement, p11, it had said that "the Reserve Bank used a projection of the OCR to highlight the level of monetary stimulus needed to achieve our inflation and employment objectives. A fall in the OCR projection relative to the previous Statement meant that more policy stimulus was needed. We have had to modify this practice given the Monetary Policy Committee’s forward guidance on the OCR out to early next year and the use of alternative monetary policy instruments. We have opted to publish an unconstrained OCR ... This demonstrates the broad level stimulus needed to achieve the Reserve Bank’s monetary policy objectives, much like the OCR projection demonstrated in the past"

You probably got ripped off, too

I'm involved with a training programme for an overseas competition agency, and we've been going through the law and economics of cartels: I've been talking about the detriments they cause. As it happens, there's a recent spectacular example of how bad they can be.

One of the gurus of cartel documentation has been John Connor, emeritus professor at Purdue and a senior fellow of the American Antitrust Institute. In 'Twilight of Prosecutions of the Global Auto-Parts Cartels', he's written about one of the biggest cartels ever (amounts cited are US dollars):

At last count 18 jurisdictions vigorously prosecuted this supercartel, which demonstrated exceptional duration, global reach, size, and injuriousness. Estimates for affected commerce of the Auto-Parts supercartel range from $3.2 to $5.0 trillion. There are few reliable estimates of overcharges, but averaging the few preliminary estimates suggests that injuries are in the range of $0.6 to $1 trillion (p1)

That's a pretty impressive level of overcharges, exacted from 17 different car manufacturers from around the turn of the millennium though to late 2009, when the cartels started to get rumbled. Chances are, if you bought a car in the 2000s, you're one of the vast number of victims yourself. Depending on what criterion you use, this was either the largest or second largest grouping of related cartels ever found.

Connor reproduced this picture, originally from a European Union enforcement announcement, showing just how many different components of a car got targeted by the cartels. Basically everything but the engine, the transmission and the bodywork got rorted. If the 'wire harnesses' rings a bell, that's one where the ACCC got involved: the Japanese company pinged in that case unwisely decided to appeal their fine, with appropriately karmic results.

There's a great deal of stuff to take away from this example, one being that companies can be too hard-nosed at bargaining for their own good: "Did the assemblers [the carmakers] push too hard on price reductions in the early 2000s, and thereby trigger supplier collusion to cope with an existential threat?" (p1). It's not a defence, and it doesn't even take us very far into tout comprendre c'est tout pardonner territory, and you shouldn't blame the victims, but (like the Lodge case here at home) you do wonder whether the damn thing would ever have happened in a more reasonable world.

And if you're into corporate strategy, you might want to think twice about all that financial engineering cleverness. You can't be rorted if you've vertically integrated that component. Divest it, though  - free up capital and all that good stuff - and you've opened up some vulnerabilities:

Perhaps it is no coincidence that collusion against GM began soon after it sold its Delco-Remy division in 1994, against Toyota after DENSO no longer supplied a majority of output to Toyota, etc. Any financial cost savings resulting from divestment may have backfired. Second, by delegating manufacturing of minor inputs (say, 2% or 3% of total material inputs) to ostensibly unaffiliated suppliers, the OEMs ['original equipment manufacturers', i.e. the carmakers] suffer a substantial loss of information about manufacturing costs and a consequent loss of bargaining power over price (p16)

The main takeaway from the cartel, though, is the ineffectiveness of the fines. We know the theory: if there's a 100% chance of being detected, a fine equal to 100% (or more) of the overcharging will deter; if there's a 20% probability, then a fine of 500% (or more). What actually happened here?

There are few reliable estimates of the size of overcharges for these cartels, and more are desperately needed, but averaging the few preliminary estimates suggests that injuries are in the range of $0.6 to $1 trillion. Even if monetary penalties rise to double the current $20 billion, cartel deterrence or cartel dissuasion is highly unlikely (p30)

Which does get you thinking about the alternative sanction of criminalisation - sending executives to jail - which we are about to introduce from April. In egregious cases like car parts, you can see why people would well reach for it. But as someone from the socially liberal end of town, I have two reservations.

Here's the first one (data from this Statista page, and originally compiled here). We're already well down the wrong end of this international comparison: we're just about the last country in the world that ought to be thinking about putting even more people in jail. 

And here's the other:

Unlike typical international cartel prosecutions in the past, few of the individuals held accountable by antitrust authorities in Auto Parts have been CEOs, COOs, or CFOs of their parent companies or even their subsidiaries ... Rather, they have held titles like sales manager, director, marketing manager, or department head of units below the corporate VP level (p27).

When we eventually press the criminalisation button, I hope we don't make the car parts mistake - jailing some midlevel functionaries, but letting the big fish swim free.

Good books 2021

Over the summer holidays we like to blob out and read, and I've caught up with some great titles.

In economics, top of the list are two excellent books, Zachary D Carter's The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes; and Matt Ridley's How Innovation Works. I've also enjoyed Daniel Markovits' The Meritocracy Trap (and in the same area I've got Michael Sandel's The Tyranny of Merit: What's become of the common good? lined up); and next on the runway will be Robert Skidelsky's What's Wrong with Economics? A primer for the perplexed. Tim Harford's How to Make the World Add Up: Ten Rules for Thinking Differently About Numbers focuses on the behavioural biases we bring to statistics, and is likely to prompt you to have a go, if you haven't yet, at Daniel Kahneman's fascinating Thinking Fast and Slow.

In biography, I hugely enjoyed Fredrik Logevall's JFK: Volume 1, 1917-1956, where the story reaches JFK's (in retrospect fortunate) failure to get the Democratic vice-presidential nomination in 1956 and his decision to go for the big one in 1960. Volker Ulrich's second volume, Hitler: Downfall, 1939-1945, necessarily has more military history than the politics and personalities of the previous Hitler: Ascent 1889-1939, but is also a good read. We've been blessed with some great biographies in recent years: try Ron Chernow's Grant (Ulysses S, that is), or Charles Moore's three-decker biography of Margaret Thatcher.

In politics, I defy anyone not to enjoy Sasha Swire's ringside view of the Cameron years, Diary of an MP's Wife. Still in the UK, both Gabriel Pogrund and Patrick Maguire's Left Out: The Inside Story of Labour Under Corbyn, and Tom Bower's Boris Johnson: The Gambler, are well worth reading. Anne Applebaum's Twilight of Democracy: The Failure of Politics and the Parting of Friends will get you thinking about the origins of polarisation, populism and demagoguery, and dovetails nicely with Ian Dunt's How To be a Liberal.

And in history I'm well into Ritchie Robertson's enormous The Enlightenment: The Pursuit of Happiness 1680-1790, and when that's finished I'll be starting Katja Hoyer's Blood and Iron: The Rise and Fall of the German Empire 1871-1918. If you've any nostalgia for hereditary rule, Martin Rady's The Habsburgs: The rise and fall of a world power will put you right. While you're wandering around central Europe, try Richard Fidler's The Golden Maze: A biography of Prague. 

After all that highbrow fare, I confess my fiction tastes run to private eyes and the more intelligent espionage thrillers. This summer's haul included the third in Glen Erik Hamilton's Seattle-based Van Shaw series, Every Day Above Ground, Peter Hanington's A Single Source (an oldstyle BBC Radio journalist gets caught up in illicit arms smuggling during the Arab Spring), Henning Maskell's After the Fire (he's best known for his Inspector Wallender books, this is a one-off), and Liz Moore's A Long Bright River (Philadelphia policewoman on trail of someone killing young women,and her drug addict sister is one potential target). I'm halfway through Cecilia Ekbäck's very well written The Historians, set in the murky politics of WW2 Sweden.

I'm a big fan of the physical book. I like the heft, the shape, the smell of a new book. Our house is stacked with them. So I've had to be dragged kicking and screaming to the idea of a Kindle. But now that I'm there, I have to say, it's terrific. See a good review, and you can have the book on your Kindle a few minutes later. It's great on a plane or anywhere else bulk comes into consideration. While I'll never begrudge the price of a good book, and I'm still reading both physical and digital versions, the Kindle price for the e-version is quite handy, too.  And if your partner's sleeping habits aren't synchronised with yours (ours aren't), with a backlit Kindle you can keep reading in bed when the lights are off.

Where is fiscal policy going?

Last week's Half Year Economic and Fiscal Update, the HYEFU, got the usual coverage: the headline deficit, the debt profile, Treasury's latest economic outlook. All fine and well, and important issues in their own right, but equally as usual the coverage came and went with little or no mention of whether fiscal policy is boosting or braking the economy or by how much. 

That's pretty important in its own right too - people want to know whether a government is using fiscal policy to help in bad times, and especially through really rough times like the GFC, the Canterbury earthquakes and now Covid - but for some reason it never gets the air time it deserves. It's not helped by the jargon around measuring the stance of fiscal policy which only Treasury analysts and (cough) fiscal geeks could love.

So in my regular attempt to fill in the gap, here is the winner, by a wide margin, of the Most Important But Most Neglected Graph in a Treasury Publication award, from p8 of the HYEFU.

Stepping through this, the black line is the government's fiscal balance after you take out the effects of the state of the economy (that's the 'cyclically adjusted' reference) and after you take out things like interest payments which don't affect whether the government is boosting or braking economic activity (that's the 'primary' reference). What you're left with in principle is discretionary changes in fiscal policy settings.

Treasury says that "The continuation of supportive fiscal policy across the forecast period is shown by the large cyclically-adjusted primary balance deficit" (let's call it the CAPB). And that's true: anytime the government is adding to aggregate demand (with its expenditure) more than it is removing it (through taxes), it is being supportive. 

But there's more supportive and less supportive, and that's shown by the blue bars, which show the 'fiscal impulse', which is just the difference between one year's CAPB and the previous year's. As an example, in the year to June 2019, government policy was mildly a brake, to the tune of a CAPB surplus of 0.5% of GDP. In the 2020 June year, it had become a strong boost, with a CAPB deficit of 4.3% of GDP. That makes for a 4.8% of GDP 'fiscal impulse' turnaround from one year to the next. In the June 2021 year policy becomes more expansionary again (the CAPB deficit gets bigger / there's a positive fiscal impulse, same diff). All as it should have been through Covid, and many other governments did much the same (here's my comparison of our stance and Australia's).

Things are forecast to get trickier in the June 2022 year and beyond. Fiscal policy remains supportive throughout: there are ongoing CAPB deficits, but they get smaller as (for example) emergency Covid schemes are wound down. Fiscal policy is still expansionary, but progressively less so.. An analogy would be the Reserve Bank raising interest rates, but still leaving them at pretty low levels.

How quickly to cut back support, and by how much, is one tough policy call to make for government and its Treasury advisers. Here is what the fiscal policy outlook looked like in the past three Economic and Fiscal Updates.

It's shifted around quite a lot. Treasury says (p8 again) that "the fiscal impulse is lower in 2020/21, but less negative in 2021/22 and 2022/23. This is predominantly driven by some COVID-19-related expenditure previously expected in 2020/21 now taking place in later years across the forecast period". The latest profile also reflects, I'd guess, the Covid hit being not quite as bad as first feared, and the initial bounceback bigger and earlier than expected. 

Overall, the forecast fiscal stance looks pretty reasonable: there's still a hole in the economy where the international tourism and education sectors were, so ongoing fiscal support makes sense while that hole needs filling in, but winding it back also makes sense as the rest of the economy recovers. And if we're fully back to normal (2023 onwards?) you (a) don't want to risk being procyclical with needlessly supportive fiscal policy in good times and (b) it'll be time to start thinking more about debt sustainability.

The lag in planned expenditure that Treasury mentioned doesn't wholly surprise me. It's true that fiscal policy through Covid showed that it can be remarkably agile when it wants to be: apply for a wage subsidy on a Monday and have it in your bank account on a Tuesday was a remarkably fast policy decision and rollout. It gives the lie to older thinking that fiscal policy would always be too slow to matter, and the big countercyclical lever would have to be monetary policy (ignoring the fact that monetary policy itself has long and variable lags). All that said, I suspect that there was also a chunk of projects that proved to be shovel unready, as it were, and it's a further little glimpse of the planning, policy, and implementation sluggishness that's left us with our perpetual infrastructure deficit.

It can work after all

At our usual blistering pace - the Fair Trading Amendment Bill was introduced in Parliament 11 months ago, and is still with its Select Committee (Economic Development, Science and Innovation) - we are getting closer to prohibiting 'unconscionable conduct'. 

'Unconscionable'? It's not a term defined in the Bill, though the proposed new Section 8 of the Fair Trading Act lists a set of factors intended to help courts recognise it when they see it. And it's not a term you see much used in everyday speech, either. But if you substituted 'disgustingly ratbag', you'd be pretty much there. 

It seems a bit odd that our existing legislation has a hole in it this big, but never mind, we're filling it in. While you can always argue about potential over-reach or under-reach, and the similar issues that crop up with the design of any legislation, the general thrust of the Bill ought to be welcome to everyone: to consumers, obviously, to economists, who recognise that markets if they're going to weave their magic need to work without oppression or deceit, and of course to the vast majority of businesses who operate decently.

The trouble has been, though, that the Aussies, who legislated for this back in 2010, came a cropper when one of their regulators tried to ping what they saw as an obvious candidate: in the Kobelt case, the Aussie High Court disagreed. That case had been brought by ASIC, the Aussie financial regulator, but the ACCC, who you'd imagine would normally be running the bulk of these unconscionability cases, was seriously rattled by the ASIC case falling over. I listened to ACCC Commissioner Sarah Court talk with some degree of passion about it at the RBB Economics conference last year and again at this year's CLPINZ conference. 

You can see why the Aussies were beginning to wonder if they needed something other than full 'unconscionability' - maybe some kind of 'unfair' provision - to catch stuff that looked pretty bad but didn't quite reach the statutory unconscionability threshold. And we might have to confront the same issue, given that our proposed legislation looks a lot like theirs.

But fear not. The good news, just this week, is that that the ACCC has scored a thumping great unconscionability win, and it looks as if the law might bite after all. This time, it was about the gross mis-selling by Telstra of mobile phone contracts to certain indigenous customers. The ACCC's statement is here, and there's a good piece in the Australian Financial Review (if you've got a sub) here.

Interestingly, despite admission of liability, apologies, and extensive remediation on Telstra's part, the agreed penalty which will be put to the courts by  the ACCC and Telstra for approval is a stonking A$50 million, which (I learn from the AFR article) would be the second largest consumer law fine in Australia, second only to the A$125 million imposed on Volkswagen for the "dieselgate" faking of emission tests (Volkswagen is apparently appealing, after a judge had upped the initial proposed penalty from A$75 million).

Hopefully our unconscionability provision, when it finally emerges blinking in the sunlight, won't be called on often. But it's good to know that it can be made to sheet home to the worst of the rogues and the bullies. To be honest, if I was asked which would I rather see criminalised first, cartel behaviour or odious pressure selling, I'd have to sit down and have a good think, and the answer mightn't be cartels.

The Bank's other stuff

Yesterday's Monetary Policy Statement went entirely as expected - no change to the Official Cash Rate (still 0.25%), no change to the Large Scale Asset Purchasing Programme (still capped at $100 billion), and the introduction of the signalled Funding for Lending Programme, intended to provide a new source of cheap funding to lenders (three year funding at the OCR rate). 

If used fully, the new FLP would amount to $28 billion. In Australia, the equivalent Term Funding Facility, which has been going since April, has a capacity of some A$200 billion, or about NZ$212 billion. Divide by 7 as a rough pro rata rule of thumb and the Aussie TFF would be a NZ$30 billion or so programme here, so the good news is that we've introduced a similar-sized stimulus.

There is a line of thinking that providing extra funding for lending might be the proverbial 'pushing on a string' if, in still unsettled Covid conditions, borrowers aren't much minded to take on more debt or banks aren't much minded to take on more risk, and it's true that (as of early November) the Aussie one has seen only A$83 billion taken up, or some 40% of the total available. But as the RBNZ said in the Statement, the actual take-up may not matter so much if the new FLP gets the cost of borrowing down, or as the Bank put it (p21)

The key success metric of the FLP will be whether it results in declines in funding costs, and encourages recent declines in these costs to be passed through to lower household and business borrowing costs. We could see a scenario where FLP funds are only drawn down in small amounts, but its availability encourages a broad decline in interest rates. We would consider this scenario successful, even though actual use of the FLP would seem minimal.

There's always interesting stuff in the body of the Statement and this time round I was especially interested in what the RBNZ had found as it went around the business traps, and in its comments on house prices.

"Many businesses", the Statement said (p18), "expressed concern about finding required staff. Some firms noted that re-deploying staff from one industry to another can be difficult, particularly for skilled jobs. Many firms rely on hiring skilled workers from abroad, which they have been unable to do because of the border closure". 

Granted, the large numbers at risk of losing their jobs in the most affected sectors - the Statement reckoned that pre-Covid international tourism and education made up 6% of GDP - won't always be a good fit for the vacancies available elsewhere, and labour market policy is always going to struggle to assist the transition. "Active" labour market policies (like these successful ones) try to ease the process, but you do wonder whether we've got enough of them. And the reported dependence on overseas skills again makes you wonder how well our labour market is working to match up the demand for skills with the supply of them.

House prices have grabbed everyone's attention, not least because the latest resurgence wasn't supposed to happen in a world where (supposedly) shell-shocked households were hunkering down, not trading up the house. It got a fair bit of attention at the media conference at the Bank after the Statement (tune in around the 29:25 mark, and stay with the rest of the video). But the Bank was quite right to say that it's not its ever-lower interest rates that are the big moving part in the house price increases. As it - completely correctly - said in the Statement (p28):

High house prices in New Zealand largely reflect structural and regulatory issues in New Zealand’s housing market. In particular, land use restrictions, such as urban planning rules, limit the land available for housing and how intensively it can be used. These land use restrictions impede the ability of the market to increase the supply of houses when demand for houses increases. As a result, house prices tend to increase more than otherwise in response to higher housing demand. Other supply-side issues include infrastructure  planning, the building consent process, and the cost of building.

You can berate the Bank all you like, and launch market studies into the building materials trade till you're blue in the face. They're all in the twopenny halfpenny place. Nothing's going to happen to high house prices until the supply side of the market starts to work a lot, lot better.

More market studies

We've got more market studies lining up: as Labour announced during the election campaign there will be two new ones, into supermarkets and building materials. 

No dramas there, but there are two aspects I'd like to pick up on.

One is that the Commerce Act says that either the Commerce Commission (s50) or the Minister for Commerce (s51), now Dr David Clark, can initiate a market study if either "considers it to be in the public interest to do so". "In the public interest" isn't defined, but the FAQ that went out with the announcement included this:

A study is considered to be in the public interest if it promotes the purpose of the Commerce Act – to promote competition in markets for the long-term benefit of consumers within New Zealand, and the following criteria may be relevant:

• There are existing indications of competition problems in the market (such as high prices or low levels of innovation).
• The market is of strategic importance to the New Zealand economy or consumers.
•  It is likely there will be viable solutions to any issues that are found.
•  A formal Commerce Commission study would add value above work that could be done by other government agencies.

That's not a bad checklist. I wouldn't have run with the "strategic" point myself but the others look good. It mightn't be a bad idea to lock the criteria in, in some codified form.

The timing of the announcement though was not ideal. Last December, when I said "I'd heard rumours" about the next market studies, it was pretty much an open secret around the competition policy traps that supermarkets and building materials were next cabs off the rank. Either of them could have been got underway then, once the Commission's resources had been freed up after the petrol market study was finished, rather than nine months later in the middle of an election campaign. 

I don't mind candidates for office telling us what they plan to do: heaven knows, we've seen enough in New Zealand of politicians springing things on us. But we are in the early stages of bedding in our new regime and it would be better if the initiation of market studies were kept away from electioneering. We don't need the risk that business, and perhaps wider public, support for our shiny new market studies gets chipped away if the process appears politicised. 

Theirs and ours

Yesterday the Aussies had their latest Budget: I won't recap all the details as they're easily available all over the place, and if you want some expert economic commentary you could try National Australia Bank's or Westpac's, and you can also go to the horse's mouth and read the Aussies' Budget Strategy and Outlook Budget Paper No. 1 2020-21. I'll just note that I particularly liked the big boost to investment by way of instant expensing of capital spending, available to every firm except the very. very biggest ones; the job subsidies for businesses who hire currently unemployed younger people; the targeting of tax reliefs to the lower end of the income scale; and the focus on increased infrastructure spending.

As regular readers know, the thing I like to look at, but which usually gets under-reported or not reported at all, is whether fiscal policy is boosting or braking the economy. It can be self-evident: when you spend up on the scale of anti-covid stimulus that both our Grant Robertson and their Josh Freydenberg have, it's pretty obviously a boost. But not always: the headline fiscal numbers can be misleading, and in any event it's also useful to know the extent of the stimulus and not just the direction.

So here are the numbers for the 'fiscal impulse': it's an approximation based on in-the-background calculations of variable debatability, but for all that it's still the best measure we've got. I've shown Australia's (from last night's Budget) and New Zealand's (from September's Pre-Election Economic and Fiscal Update or HYEFU). For fiscal policy tragics, I've calculated Australia's as the year on year change in the underlying cash balance as a percentage of GDP, and for New Zealand I've used Treasury's numbers.

What's interesting is that both governments have reacted very similarly indeed. The Aussie stimulus giveth a bit more in the current 2020-21 year, and taketh away a bit more in the subsequent 2021-22 year, but there's not much other difference in the overall pattern since covid hit (pre-covid, the Aussies were playing a bit more of a macho 'I can get back to fiscal surplus faster than you can' political game than we were). Personally I take a bit of policy comfort from the similarity: if they were very different, you'd be inclined to think one (or both) may have lost the plot.

It's also got me thinking a bit more about that fiscal tightening you can see planned for 2021-22 in both countries. Normally a fiscal tightening of 5.4% of GDP (Australia) or 3.7% of GDP (us) would be a massive brake on an economy, and when I wrote up the HYEFU I doubted if the New Zealand economy in 2021-22 would be in anywhere strong enough shape to cope with it. You could say the same about Australia's even larger brake: on their Treasury's forecasts, unemployment will still be 6.5% in June 2022.

But I'm beginning to appreciate that the fiscal tightening might be a bit more apparent than real. Suppose a big slab of 2020-21 fiscal support consisted of temporary wage subsidies, entirely appropriate while companies were facing weak demand. Covid disperses, demand picks up, the subsidies are yanked (and turn up as part of that fiscal 'tightening in 2021-22), but businesses don't really mind. The temporary government cash has been replaced by ongoing customer cash, all good. It's not experienced as much of a 'tightening' at all.

Fair enough, but another way of putting it is that the current forecasts of a reasonably quick withdrawal of fiscal support depend on that recovery in the non-government economy. I'm inclined at the moment to stay on the cautious side. It would be great if both economies bounced back big and quick - the proverbial V-shaped recovery - but I wouldn't be surprised if we ended up with a W or other variant. I suspect both countries' fiscal policies will have to be a bit more supportive, for longer, than their Treasurers currently expect.