Oz’s debt-fuelled economy ‘roaring back’ from Covid
AUSTRALIA will keep taking on record levels of debt as it spends its way to a swift post-pandemic recovery, but the country expects to keep its international borders closed for at least another year.
Delivering the federal budget on May 11 night, the ruling Coalition presented an upbeat assessment of the nation’s economic future, including plans for 4.25 per cent growth in gross domestic product (GDP) next year and a drop in unemployment to five per cent, down from a 22-year high of 7.5 per cent last year.
But the rosy forecast is built on mounting national debt, which is expected to keep rising and eventually peak at A$980.6 billion (US$765 billion) – or 41 per cent of GDP – in 2024-2025.
Treasurer Josh Frydenberg said Australia was doing much better than initially feared and its economy was “roaring back to life”.
“Australia is coming back,” he proclaimed. “In the face of a once-in-acentury pandemic, the Australian spirit has shone through.”
The budget confirmed that the country is rebounding from the pandemic much faster than expected. The nation’s coffers have benefited from surging employment levels, which have led to extra tax revenues and reduced need for welfare spending, as well as booming iron ore revenues due to higher prices and soaring demand from China.
Frydenberg said Australia still faced global uncertainties, especially as the pandemic continues to wreak havoc around the world. But he said Australia’s strong spending, including its scheme to pay employers to keep workers hired during the slowdown last year, had helped to boost employment and keep the overall economy intact.
Australia’s economy entered its first recession in almost 30 years last year but is recovering fast. It is due to have grown by 1.25 per cent in the year to July. Interest rates are at record lows, helping to fuel rising property and stock prices.
Unusually, the Coalition has abandoned its traditional insistence on keeping spending low and achieving surpluses. Instead, the Government expects debt for this year to be A$161 billion, though this is about A$50 billion less than forecast.
Speaking to ABC News last night, Frydenberg said: “In times of national crises, there are no ideological constraints.”
The budget’s big spending measures on rail and road projects, welfare and tax relief for those on lower incomes were seen as part of a pre-election plan by Prime Minister Scott Morrison.
He is expected to call an election within the next 12 months.
Analysts and economists largely welcomed the budget, praising the Coalition’s decision to focus on increasing spending and protecting jobs rather than worry about the spiralling debt.
The Labor opposition said the budget failed to support clean energy or measures to boost much-needed wage growth.
“Our concern is that this government’s racked up A$1 trillion in debt and they don’t have enough to show for it,” Labor’s Treasury spokesman, Dr Jim Chalmers, told ABC News.