Forget the media lies about President Donald Trump telling Americans to inject bleach and other such Trump-deranged fake news. The biggest delusions, exaggerations and outright bullshit about the Wuhan Plague have been peddled by the so-called “experts”: scientists, public health bureaucrats and supposedly sober and responsible politicians.
Even the Morrison government, supposedly fiscal conservatives, joined the idiot chorus of “freezing the economy”. Add to that the extraordinary cost of the government’s various stimulus measures, and the outlook is for the biggest debt slug since WWII.
We’d already seen the effect of such Keynesianism-on-steroids, when the Rudd government lost its fiscal head in response to the GFC. The consequent debt was only just being reigned in by PM Scott Morrison and Treasurer Josh Frydenberg before the Chinese virus blew that all to hell.
Australia’s debt burden will push beyond the $1.1 trillion debt ceiling expected in Tuesday’s COVID-19 budget, with one of the nation’s leading economic analysts saying it will continue to rise to 70 per cent of GDP — or $1.4 trillion — by the middle of the decade[…]
UTS professor Warren Hogan said the Morrison government would be forced to spend and borrow more over the coming five years to prop up the economy through the aftermath of the COVID-19 recession, predicting the debt to GDP ratio will grow to 70 per cent of national output by the middle of the decade.
This suggests a gross debt burden of $1.4 trillion.
“Unless we have a miracle recovery, history tells us it (the debt level) will be more,” Professor Hogan said.
Recovery may well be swifter than expected, but the demands on the public purse will persist. The government is finding to its chagrin that handing out the financial sweets gives the electorate a sugar hit that it is reluctant to come down off. Having “temporarily” doubled benefits, the government is facing an uphill political battle to claw it back. Double benefits are the “new normal”.
And the Wu-Flu is still far from over.
Treasury’s assumption that a COVID-19 vaccine would be produced next year — a highly uncertain prediction — also heightened the risk that the economic and fiscal forecasts in the budget paper may prove too optimistic, he said.
But there is some good news. While debt will skyrocket, the cost of maintaining it will be much lower than previous deficits.
While debt levels are set to soar, the collapse in bond rates over the past six months means borrowing costs will barely budge. According to Deloitte Access Economics, the budget will reveal the annual national interest bill will reach in the order of $16bn by 2022-23 — below the $18.5bn paid in 2018-19 when borrowing was well below current projections.
Melbourne University tax professor Miranda Stewart said the interest expense was the “real cost” of higher debt. At under 1 per cent of GDP, “the reality is the interest cost is really very low”.
Australia’s debt still remains relatively low, by global standards. At a worst-case scenario, Australia’s debt-to-GDP ratio is forecast to reach 70%. Right now, at around 40% it remains far below New Zealand’s, which already stands at close to 50%. NZ Treasury’s forecast maximum of 55% by 2023 seems optimistic. Even pre-pandemic, many countries were much worse off: Japan at 200%, Italy 130%, the US 90% and UK 85%. Australia’s debt levels are closest to Germany’s.
Compared to WWII, as well, the debt as a percentage of GDP will be much lower. The War debt took 15 years to claw back – but that was on the back of a massive surge in migration.
And there’s the big risk: that government and business fall back on their long-preferred, lazy strategy of simply flooding the country with more and more migrants, cramming cities and their infrastructure far beyond capacity.
But, there are positives on that front, as well. The government’s announced policy to encourage businesses to put on apprentices is a long-overdue step – and at least the Morrison government can reasonably be expected to deliver its policies.
Ardern’s COVID recovery promises on the other hand seem about as reliable as Kiwibuild.
Australia and New Zealand are threatened by monstrous post-COVID debt. The BFD. Photoshop by Lushington Brady.
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