The pandemic and the government’s response has sent the budget into deficit to an extent not seen since wartime and crunched key economic indicators for the next two years — with a double dip recession to be created by the withdrawal of Jobkeeper assistance.
Treasurer Josh Frydenberg and Finance Minister Mathias Cormann unveiled the long-awaited budget update this morning, showing that the mooted 2019-20 budget surplus had turned into an $85.8 billion deficit, while this year — originally forecast for an $11 billion surplus, will see a colossal $184.5 billion deficit, or just under 10% of GDP.
That will send Australia’s net debt to over 35% of GDP — a figure likely to get worse before it gets any better.
Economic growth will also be severely curtailed, with negative growth for longer than initially expected. Growth in 2019-20, with two quarters of negative growth in the March and June quarters, will be -0.25%, with the government expecting a June quarter contraction of -7%. While economic activity is expected to lift 1.5% in the September quarter, growth will still be negative overall over 2021, at -2.5%.
That appears to mean a double dip recession, with growth returning to negative in the December and March quarters — when the government is cutting back significantly on its JobKeeper and JobSeeker programs designed to support incomes.
The government expects a big rise in growth in the first two quarters of the 2021-22 financial year, to lift overall growth in calendar 2021 into positive territory.
Unemployment will surge to nearly 9% nationally in coming quarters, and that will smash wages growth, with growth having fallen from the stagnant level of the March quarter — 2.2% — to 1.75% overall for 2019-20 and then 1.25% this year — the same as the inflation rate, meaning no real wage growth.
Business investment is expected to collapse by more than 10% this year, along with a huge fall in housing investment. the lack of world economic growth will also harm our terms of trade, which will fall by over 10% as well.
Disappointingly, the government has only provided forecasts for 2020-21, instead of the usual budget practice of this year and three years beyond. Like many fiscal practices these days, one can only imagine the cries of outrage if the Rudd or Gillard governments had declined to offer any forecasts.
The only path from recession is economic growth and there can never be a growth path under this governments policy of wage and income suppression, economic growth is circular, discretionary spending creates consumer spending which creates demand which creates employment which again creates increased consumer spending which increases profits which pay for wage increases which create tax payments from both consumer and companies, break this cycle with wage suppression means less demand, lower profits higher unemployment which means lower wages and lower company profits and lower taxes paid, this government and its predecessors since Abbott have had policies designed to put downward pressure on wages and incomes which takes consumers discretionary spending from consumers, progressive countries promote wage growth, regressive countries promote wage suppression and increased migration to make more completion for every job which helps them keep wages lower
But let’s not forget, given the comparison between Australia’s deficits post-Covid and post WWII, that Australia’s post-WWII economic growth was exceptional by world standards and it was really only from the 1980’s that economic growth stuttered – the result, in part at least, of Australia’s headlong charge into neo-liberalism and the increasing reliance on immigration and fossil fuel exports to pump up the economy. I’m not suggesting that the Covid-deficit is not a serious matter, but so was the deficit post-WWII, but it didn’t hamper the recovery and post-war development in Australia. The idea that the deficit is going to be “crippling” is a continuation of the utter mythology, mostly supported by Coalition hot air about “Labor’s debt and deficit disaster” (I almost vomit when I picture the unprepossessing vision of Kelly O’Dwyer managing to get that phrase into every sentence she uttered from 2013 to at least 2015 – until it emerged the LNP actually had a bigger debt and deficit disaster). Of course, the post-WWII Australia was a very different country, not the least because we then still had a reasonable manufacturing sector (even if it looked more to produce for the closed Australian market and spending on infrastructure – none of which is in evidence now; especially after the corpulent snout-in-the-trough Hockey essentially killed off the last of the major manufacturing and not just the car industry but a range of associated industries that died with it).
The real problem won’t be the actual deficit – it will be the pompous LNP fiction about how, as the “superior economic managers”, the deficit needs to be brought down and their growth-curbing strategies to achieve that apparently essential outcome – except for tax cuts of course. The evidence points only to the LNP being inferior economic managers, but with the right-wing media promoting the false view, the gullible Australian voters will continue to accept a proposition that sounds plausible, despite it not, in any way, being supported by any factual evidence.
I suspect that this will play into King Morrison’s narrative as he prepares to go to the polls in 2021. I think what he is aiming for is a reasonable economic recovery into the first-half of 2021, allied to reasonable polling for him, so he will find a way to call an election which will be fought on his supercilious utterances about whether Australia wants the “mismanagement of Labor at a critical time in our history”, or more LNP genius – by which he will mean his personal genius.
If increasing debt is such a big problem, why is the govt providing large tax cuts, mostly to those who don’t need them, and failing to provide sufficient funds to those who desperately need help but are denied, allegedly due to debt. The claim that the massive debt must be paid back, thus justifying a refusal to provide temporary help to ALL those who need it, reminds us of the time nearly 100 years ago when the great depression hit and the then conservative govt rejected proposals to stimulate the economy and instead do the opposite; it reduced spending making the economy much worse and driving unemployment higher, causing an unnecessary economic and human catastrophe. We now have the same lot making the same case for minimising govt stimulus to the extent necessary to uphold the economy and ensure minimal impact on vulnerable communities. To claim the debt has to be repaid is not correct; it doesn’t. Public ‘debt’ can be met by adding expenditure via additional money supply that addresses spare or unused capacity in the economy. It can be turned down/off as spare capacity recovers and thus ensure inflation is kept within safe limits. But, boy, couldn’t we do with a dose of inflation right now! The Govt’s claims that it has to be all paid back and thus ties its hands is nonsense. Decisions to restrict expenditure are politically based, not economic. It’s interesting that the govt can forego billions in revenue and increase massive handouts to those with higher incomes but uses debt to limit what it can do for those on lower or no incomes. It’s politics, and class politics at that. The likely result will be greater stress, higher unemployment and more idle capacity. And, with the Libs gradually strangling the ABC, controlling Nine newspapers, including the Fin Review, Age, SMH, and Murdoch being the media arm of the Libs, it’s not a pretty picture for those with different views to get their opinions heard, or for Labor to have equality of opportunity. God help us but it’s looking like a one party state for another 23 years … been here before!
And that’s the very best spin #JoshFromAccounts can put on it. The forecasts are pure fantasy. It is going to get much worse from here and the Muppet Show has no idea what to do about it. This is not a time for the dry paucity of vision inherent in conventional market economics and monetary policy. It is a time for courage, innovation and a visionary new direction. But all we will get is sad-eyed hand wringing from Josh inviting sympathy for his horrid luck.
Most of the media are just in lockstep with the LNP bullshit and just parrot their garbage endlessly as if it is the absolute truth. We have to suffer the smirking Morrison for the next two years and possibly beyond. However if the economy really crashes hard and the wannabees finally suffer enough loss of capital and status, we might see enough of the ‘liberal tradie’ types desert the LNP and go back to Labor but maybe I’m just fanatising and we are phucked.