Debt and deficit go out the window as the reality of the coronavirus crisis hits home
Yes we have these politicians who slime their way through media conferences. Yes we are all in this together. Yes things are picking up. Its everybody else’s fault. No we did nothing wrong with the Diamond Princess just like it was somebody else’s fault a whole plane load of Jetstar passengers went through unscreened. Its not the Governments fault that Islamic’s are the greatest spreader of the bug. All because of their fear of being called names. While Australia goes under these lot are making it far worse. Dont start me on Daniel Andrews and his sanctuary state. Its everybody else’s fault because we dont share the Communist vision he has.
Oh yes, the main topic. This country is stuffed totally for generations to come. The United Nations has all our money, as well as the Clinton Foundation, add to that climate change. Yes your children and grand kids are sold into national slavery now. Very few will be able to buy a house, there are no decent jobs to be had. This of course is because of a stroke of brilliance called “The Lima Declaration”. In short, it was a contrived manipulation to shut down our industries and send everything offshore. The following is an article that says it all:
Oh yes, the unemployment figure is currently 13%, that does NOT include, jobseeker or jobkeeper unemployed people. The real figure would be above 25%, well above the great depression figures
When will it finally sink in? No-one really cares about the deficit or the national debt, least of all the millions of Australians now facing the very real threat of a long period of unemployment, personal hardship and crisis.
As Treasurer Josh Frydenberg and Finance Minister Matthias Cormann grimly fronted a media pack in Canberra, fresh after releasing Treasury’s latest tally of COVID-19’s financial toll, they were peppered with endless questions about how we will ever dig ourselves out of debt after all this Federal Government largesse.
Eyewatering, historic, the largest on record, from $5 billion surplus to $86 billion in deficit and more than double that next year.
On and on it went.
They did their best for a while, with graphs and tables demonstrating our capacity to pay and how much stronger we are than almost every other country, until an exasperated Senator Cormann broke ranks.
“What was the alternative?” he barked, several times. It was a sobering moment that met a muted response.
Exactly. There was, and is, no alternative.
But that’s the price you pay for spending decades indoctrinating an electorate about the absolute sanctity of surpluses and evils of deficits.
Australia does not currently, has not previously, and won’t have a debt and deficit problem. What we have is an unemployment problem, the extent of which is still largely unknown.
The Treasurer reckons more than 11 per cent right now. Others say more. If that isn’t fixed, we will run into serious trouble down the track both in our ability to function as an economy and as a just and equitable society.
But it won’t be fixed by premature attempts to rein in the deficit and cut national debt. The surplus fetish needs to end.
Another round of rosy forecasts
Forecasting is never easy. You only need to look at the rosy forecasts dished up by Treasury over the past decade. The Reserve Bank hasn’t been any better.
They’ve pretty much all been wrong. Wages growth has been set for an Apollo mission-style take-off every year in recent memory. Inflation, household income and, until recently, GDP were all on the cusp of returning to normal. Until they didn’t, and the prediction was repurposed for the following period.
The problem is always in the underlying assumptions. And this week’s effort is likely to continue that trend.
Take the JobKeeper extension plans. In the first six months of the program, the Federal Government spend is forecast to come in at $70 billion. For the six months to the end of March, it is budgeted at just $17 billion.
While the amount of money is being reduced by a few hundred dollars a fortnight, it’s pretty clear by those estimates that Treasury reckons a vast number of those currently on the scheme won’t be after September 30.
At the moment, roughly 3.5 million Australians are receiving the payments via their employers. The question no-one can answer is how many will move back into privately funded employment and how many will move onto unemployment benefits.
The logical conclusion from this is that government spending is likely to be, and needs to be, elevated at levels well beyond the forecasts today to keep the economy afloat.
One assumption that appears entirely unrealistic is that international travel restrictions could well be eased by January.
Let’s just put aside the travails in Victoria right now. Even if that hadn’t taken place, given the second-wave virus outbreaks coursing through North America and Europe and the escalation of a first wave in Africa, what are the chances of open borders by the new year?
When it comes to economic forecasting, however, that assumption plays a mighty big role.
First, it would allow a limited resumption of international tourism and the inflow of foreign students, our third-biggest export industry.
Second, and more important, it would reinstate one of the biggest drivers of Australian economic growth: immigration.
While we skite about our “miracle economy” and 28 years of uninterrupted growth, a large part of that has been down to simply adding more people to the population. The bigger your population, the bigger your economy. So, adding people equals growth.
In recent years, immigration has accounted for 64 per cent of our population growth and, according to a Federal Government study, by 2050 will contribute $1.6 trillion to GDP.
The longer our borders stay closed, the more difficult it is to maintain the growth forecasts into the future.
While immigration boosts the overall size and value of the economy, it doesn’t necessarily make everyone better off.
In fact, it can make us worse off, as this graph from the Australian Bureau of Statistics shows.
The surplus obsession, coupled with the immigration-led growth model, has led to a decline in our productivity.
Our cities have become ever more populated but the infrastructure investment hasn’t been made to allow us to maintain our output as we waste time stuck in traffic jams or waiting for a bus that isn’t full.
There may never have been a better time for the Government to think about ramping up investment to modernise the nation.
The austerity trap
As the Treasurer pointed out, Australia has one of the lowest debt-to-GDP levels of any developed nation.
That puts us in a unique position to cope with this crisis. But, despite all the rhetoric, we have not entered this global downturn from a position of strength.
Last year, the Reserve Bank was forced to cut interest rates three times as consumption sank beneath the combined weight of the lowest wage increases in history and record levels of household debt.
RBA governor Philip Lowe repeatedly urged the government to ramp up spending to boost the economy; pleas that were buried in the quest to achieve a balanced budget.
With mass unemployment, little if any immigration and enormous household debt, it will be up to the Federal Government to help maintain household consumption which, in turn, will keep industry afloat and ultimately put the economy back on track.
Its focus needs to be on reducing unemployment and to hell with the surplus. A strong economy quickly shrank our national debt after World War II. It could happen again, but the Government needs to take control.
As the Europeans learned during the global financial crisis, austerity can turn an emergency into a disaster.