The Morrison Government has today acknowledged the vast $852 billion debt chasm Australia will need to climb out of as a result of the Covid-19 pandemic, revealing it will take a decade to pay off.
Releasing the much-anticipated Economic and Fiscal Update, Treasurer Josh Frydenberg revealed the eye watering numbers. Just seven months ago, he was on track to deliver a much-vaunted Budget surplus but that has now well and truly been officially torpedoed with the deficit now forecast to reach $184.5 billion in 2020/21. Net debt is forecast to soar to $677 billion.
This is still assuming that Melbourne can come out of quarantine sometime soon, as the profound impact of the nation’s largest growth engine being out of action becomes clear. Rebooting the great southern state, which accounts for 25 per cent of the national economy but also 40 per cent of the national growth due to large population growth and infrastructure spending, is now the main game. This would then enable the Government to start to wind down the massively expensive JobKeeper payments that are keeping many businesses alive.
Real GDP is forecast to fall by a staggering 7 per cent in the June quarter but rebound next financial year – provided the pandemic doesn’t get worse and Australia isn’t forced into a further shutdown.
The Treasurer confirmed unemployment will hit 9.25 per cent, confirming the “harsh reality” of COVID-19’s impact on the economy. He also hosed down expectations of changing the rate of GST – or broadening the GST base – during an at-times feisty press conference in Canberra.
Flanked by Finance Minister Mathias Cormann, the Treasurer strongly defended the $164 billion spent on trying to get people back to work amid the worst economic contraction in a century.
But the Government conceded that what happens in Victoria – and in other States if COVID-19 spreads across borders – will hamper the forecast of a tentative economic recovery through next year.
During a long and detailed presentation, the Treasurer was at pains to point out how well Australia is performing against practically every other developed economy.
He said Australia was “experiencing a health and economic crisis like nothing we have seen in the last one hundred years. Our economy has taken a big hit and there are many challenges we confront. We can see the mountain ahead and Australia begins to climb”.
But while the impact of coronavirus will linger for possibly decades to come, Mr Frydenberg sought to showcase how Australia is performing better than just about every other nation across key economic indicators.
The full impact of COVID-19 is being felt in employment with 870,000 jobs lost between March to May, while 1 million workers have had their hours cut. The Treasurer stressed the damage done to families and communities as companies laid off their staff.
“These are mums and dads, sons and daughters, friends and colleagues,” he told journalists. But he said that without the Government’s JobKeeper scheme, unemployment would have soared by another 700,000 jobs – or 5 percentage points.
The Government is now keen to leverage the current economic downturn to introduce greater labour market flexibility. The Treasurer said that temporary measures – that allowed bosses to change employee duties or the hours and locations that they worked – should be made permanent.
But the Treasurer hosed down calls for the Government to undertake further tax reform by increasing the rate of GST from 10 per cent and increasing its base. “We are the party of lower taxes. The pathway to growth is through lower, not higher, taxes,” he said.
The Australian share market closed slightly higher with investors relieved the budget deficit was not worse.
The Government will probably try to maintain its AAA credit rating especially with all the new debt it is carrying. If it can do this, it will help find the infrastructure pipeline that is so critical to creating jobs and supporting stimulus.
Now, the Treasurer will turn his attention to the October 6 Budget which will outline a raft of savings measures and initiatives to try and boost jobs.
