Economic management — Question 94

Answer
Temporary targeted demand support can address current slack, alongside a staged capacity upgrade justified by the identified bottlenecks.

Working
The rebate retains $0.70 billion initially in domestic spending and arrives quickly; the upgrade retains $0.90 billion but its principal operating benefits take two years (Source 1). Empty rooms and idle staff support near-term demand measures (Source 2), but recovery is conditional on overseas incomes and currency competitiveness. Airport delays and skill shortages support a longer-term supply response (Source 3). Appreciation weakens foreign purchasing power for local holidays while making imported upgrade equipment cheaper (Source 4). A staged mix can bridge present employment weakness without assuming permanent festival subsidies will solve capacity problems. Eligibility and local sourcing should improve additionality; the airport project needs demand and cost assessment. Fiscal opportunity cost, leakage and a slower foreign recovery could weaken outcomes. Regional jobs should be assessed net of displacement from other Australian destinations.

Marking criteria

• Calculates the $0.70b and $0.90b first-round domestic amounts. [3 marks]
• Explains current slack versus future capacity constraints. [3 marks]
• Integrates exchange-rate and overseas-income influences. [4 marks]
• Evaluates timing, employment and sustainable-growth trade-offs. [4 marks]
• Justifies a policy mix with additionality and opportunity costs. [4 marks]
• Recognises a forecast or regional-displacement limitation. [2 marks]