The Pandemic Has Blown The Tires Right Off That Old Debt Truck

The Pandemic Has Blown The Tires Right Off That Old Debt Truck Shutterstock

Josh Frydenberg, a Victorian, wore a surgical mask as he walked from his parliament house office to a committee room to deliver the government’s economic statement.

The treasurer had already had to obtain permission from the ACT government to be in Canberra.

Symbolic reminders, as if anyone needed them, that Victoria holds the key to whether the dire budget numbers Frydenberg presented on Thursday represent the floor under this crisis, or they’re just a prelude to an even scarier set.

Frydenberg describes the numbers, including a projected deficit this financial year of $184.4 billion, as “eye-watering”.

For the millions of people either jobless or being precariously supported by JobKeeper, the most frightening figure will be 9.25% – the expected peak in the unemployment rate, coming by year’s end. (Of course that will be an understatement – Frydenberg told us the other day that already the real unemployment level has topped 11%.)

For these people, as well as the many others on squeezed incomes, it will be the bleakest Christmas imaginable.

But in this pandemic, Christmas is an eternity away, because so much is up in the air, as the economic statement indicates. Crucially, it assumes Victoria’s lockdown lasts just its scheduled six weeks. If things deteriorate, that could be extended; at worst, the lockdown could be toughened.

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Then there’s NSW, which is holding the line on cases, but sits on a knife edge.

With Victoria exposed as the weak link in the nation’s health response, the Andrews government is under deserved criticism. It failed on quarantine; its tracing effort has been inadequate; there’s been conflicting information on isolating.

The virus is running through Victorian aged care facilities, both staff and residents. Indeed, the inability to protect this sector raises questions at a national level, given the likely problems with its workforces should have been addressed earlier and better.

If Victoria’s crisis deepens, the numbers in the economic statement will have to be drastically overhauled in the October budget, and more money spent.

Even if the health situation doesn’t worsen, it will be incredibly tough for many people as they compete for a limited pool of jobs, and for many businesses, some of which won’t make it to that “other side”.

Scott Morrison has won deserved praise for his handling of the pandemic and, as the situation stands, this week’s decisions appear appropriate.

Despite the government’s earlier hopes of “snapback”, extensions of JobKeeper and the Coronovirus Supplement to JobSeeker were vital to avoid the economy falling off that much-feared “cliff”.

From October the government is building in step-downs to lower payments; also, JobKeeper will be two-tiered.

Critics say the reductions will be premature, but on the assumption the economy will be transitioning, some winding back is reasonable. If the virus gets away from us, it will be another story.

The economic statement embraces, of necessity, debt and deficits of massive proportions. Net debt is forecast to increase to $677.1 billion by mid next year, 35.7% of GDP (in 2018-19 it was under 20%).

If anyone had told the Coalition when it was elected in 2013 that it would be presiding over such a debt level, let alone arguing its virtues, they’d have been laughed out of court.

But as Finance Minister Mathias Cormann said, “what was the alternative?” Australia is also in a much better position than many other countries to handle debt, given it started with it a low proportion to GDP. Moreover the funds can be borrowed extremely cheaply.

A pragmatic Morrison isn’t fretting about retiring that old “debt truck” to the junk yard, its tyres blown off, now it’s unfit for purpose.

In purely political terms, Morrison is well placed (which isn’t to say this will necessarily last). During the pandemic, people have looked to governments; historically low levels of trust have risen. It mightn’t stay like that on the long road ahead but this has helped the government so far.

The Morrison government does face criticism but it is muted or, to an extent, impotent.

The muted version comes from Labor, which picks around the edges of the government’s actions, while endorsing the headline measures. That’s about the only course Albanese’s opposition can take; in these desperate times, Labor is forced to the margins of relevance.

More interesting perhaps is the discontent on the right, which includes the government’s hardline supporters in the commentariat.

Many of these critics have been beside themselves, claiming the government has massively over-reacted to the virus. They would have the scales weighing health and economy reset to heavily favour the latter. The threat of COVID-19 has been much exaggerated, they insist, emphasising the mildness of the disease for most who get it. For these critics, the numbers in the economic statement are horrific.

The argument of those on the right is flawed in policy terms, and certainly not where the mainstream public sit. If COVID-19 produced a large death toll, the economy would tank a lot further. It’s fanciful to think activity and investment would swing along merrily.

Morrison has his eyes firmly on pushing ahead with a return to some sort of economic normality. But he also accepts the health imperative when circumstances force that. He didn’t attack Victoria’s new lockdown. Indeed, he has stopped chastising journalists for using the term “lockdown” (of which there are various versions).

With the economic statement out, attention will turn to the budget and the reform agenda.

This week we received a fresh strong signal on the latter, with Morrison again flagging he’s determined to leverage the crisis to achieve long-term industrial relations flexibility.

He has under way a negotiating process on workplace relations bringing together business, unions and government. While he’s looking for some agreement, this is also about legitimising the pursuit of change.

“We’ve been adopting a highly consultative approach,” he said. “But none of us are so naive to think that this will result in a complete agreement on all measures.

"I can assure you, we’ll put forward what we think is best for the Australian economy and for the Australian people. … We’ll seek to legislate that through the parliament.”

Morrison insists the economic statement is not a mini-budget. He’s right. It is an update of budget numbers – albeit like no other we’ve seen – plus the extension of existing programs. The decisions ahead will actually be harder to make than this week’s and, in some instances, a lot more difficult to sell.The Conversation

About The Author

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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