Federal Treasurer Josh Frydenberg was not exaggerating when he warned Australians that they should expect “eye-watering numbers” on debt and deficit, after revealing the worst Federal Budget black hole since World War II.
“[These are] numbers that Australians have never, ever seen before,” Mr Frydenberg said, signing his name to the shortlist of notable treasurers who have run the nation’s books during economic calamity.
“That’s the harsh reality of this pandemic. The coronavirus has required the Government to spend unprecedented amounts of money to support people in need.”
Indeed, the Federal Government is both the cause of and the cure for the recession, having induced a coma in the economy and now attempting to resuscitate it.
The Government had delayed the Budget from May until October but on July 23 delivered an economic and fiscal update, which revealed the depths of the economic destruction of covid19.
Consider this. As recently as December last year, Mr Frydenberg was forecasting a $5 billion budget surplus in 2019-20. That’s how optimistic things were looking. However, covid19 spending measures, including the $86 billion JobKeeper wage subsidy, have instead taken debt to unprecedented levels.
“These deficits reveal the real cost to the budget of protecting lives and livelihoods as result of coronavirus,” the Treasurer said.
The Federal Government expects unemployment to reach 9.25 per cent and a projected budget deficit of $184.5 billion. It estimates that more than 700,000 jobs were lost to covid19 in the June quarter alone.
But the numbers disguise the likely real impact the Government-induced shutdown is likely to have in the real world and on peoples’ lives, especially on young people trying to get a foothold in the job market.
Past experiences of deep recessions suggest unemployment takes many years to shake off, which means for many young people long, long waits to get a job, with the consequent powerlessness to build savings, buy a home or form a family.
It will mean many businesses will fail, but also deny many others the entrepreneurial opportunities and job creation that new businesses bring.
And, while the official unemployment rate is 7.4 per cent, that does not account for people attached to jobs thanks to the Government’s JobKeeper wage subsidy, or for people who have left the workforce.
While Treasury was very precise in its prediction of a $184.5 billion deficit, who knows what the actual number might be? The reality is that, with the uncertainty of the pandemic – especially in Victoria – the deficit could be even higher.
What is known is that the nation’s overall debt will not be paid off in our lifetime – unless the world tips into an inflationary spiral.
Gross debt was $684 billion at the end of 2019-20 but is now tipped to be almost $852 billion in 2020-21. A trillion-dollar debt cannot be far off.
Asked when Australia might be able to pay back its debt, the Treasurer would not be drawn. “We’re not putting a date on it, because we want to grow the economy,” he said. “What I can tell you is we’ll be doing everything to get people back into jobs and ultimately grow the economy.”
A sign of how weak the Australian economy is were figures that showed that Government income from tax fell $31.7 billion in 2019-20, while it expects a $63.9 billion decline this financial year. So, revenue is collapsing even as outgoings for social welfare support are soaring.
The Government faces the dilemma of having to be resolved in the face of calls to spend even more money, and from some quarters calls to introduce a “universal wage”, but also being prepared to spend more to help the economy recover.
And Labor remains impotent on the sidelines, only able to criticise on how the Government’s spending is being done.
But the crisis does bring the opportunity of making long-term investments in infrastructure and other government works that can be undertaken for the future generations who will bear the debt burden.