Question 5 (10 marks)

You are a high-ranking member of staff of the Australian Commonwealth Treasury, and you are being questioned by a Senate Select Committee on Australia's macroeconomic response to the COVID-19 pandemic. In particular, you have been asked to respond to the following statements made by members of the committee.

1. "I put it to you, as you are a senior member of the Treasury team in charge of macroeconomic policy, that Australia's decision to rack up a trillion dollar debt thanks to the self-imposed lockdown only brought us temporary relief as the repayment of this massive debt will lead to slower economic growth in the future. I put it to you that had Australia had a milder lockdown and thus a smaller debt the future trajectory of growth would be greater than what we face today. What are your considered thoughts on that? Please explain to the committee why you agree or disagree with what I have just stated." (5 marks)
2. "The big rise in spending on healthcare during the COVID-19 pandemic was obviously necessary but a drag on long-term economic growth due to it being financed via debt, which must obviously be repaid. Why is your team not recommending that the government wind-down health expenditure as it has no discernible positive long-term impact on economic growth?" (5 marks)