Our country can scale this mountain of debt
THERE’S been plenty of talk in recent days about Australia’s growing mountain of debt.
Our federal government revealed it was $86bn in the red for the 2019-20 financial year — after being on track for a surplus before the world went haywire with coronavirus — and it is forecasting an even bigger deficit of $185bn for this financial year.
These numbers are hard to fathom: they mean our government is spending a quarter of a trillion bucks more than it brings in through taxes in just two years.
A big chunk of that debt flows from the JobKeeper wage subsidy program and the expanded JobSeeker payments for unemployed Aussies. While they cannot go on forever, these programs are doing wonderfully well in propping up our economy and preventing more job loss pain.
The spending they have underpinned helps explain the 8.2 per cent jump in June retail spending reported last week. CommSec chief economist Craig James describes this as “a very interesting recession”.
He says our economy is doing better than most.
While Australia’s COVID-19 cases have surged since June, we’ve also seen Prime Minister Scott Morrison and Treasurer Josh Frydenberg extend JobKeeper until next March and JobSeeker’s coronavirus supplement until at least December.
Some have criticised the government for letting JobKeeper’s $1500 fortnightly payments deliver part-time workers billions of dollars more than they would have earned in wages since March.
However, that money, plus extra payouts to unemployed people and pensioners, is being pumped back into the economy and shielding it from a worse slump.
Lower-income households are more likely to spend extra dollars they get, while higherincome households often save these windfalls because they already have cash to spare.
And wealthier households that typically spend thousands of bucks each year on overseas travel are being tempted to spend more at home.
Our economy is simply a measure of people producing, buying and selling stuff. It’s now shrinking — our first recession in three decades — but we’re not alone.
And while national debt is growing, we entered COVID19 better placed than most of the world. And record low interest rates at home and abroad have helped.
AMP Capital chief economist Shane Oliver says the bigger debt is affordable.
“Australia’s starting point for net public debt was low at 23 per cent of GDP compared with other advanced countries averaging 83 per cent,” Dr Oliver said last week.
Reserve Bank governor Philip Lowe also believes our public debt is manageable.
Dr Lowe said Aussies had become used to low budget deficits and low debt, so now was quite a change, but an affordable one.
“And it’s the right thing to do in the national interest,” Dr Lowe said.