Sorry, but this is the economic statement of a government that’s complacent about controlling the coronavirus and about getting a million unemployed people back to work. It sees its job as largely done. Now it’s time to quickly wind back its spending on supporting the economy and call for the bill.
You can tell Prime Minister Scott Morrison and Treasurer Josh Frydenberg decided this before the extent of the setbacks in Victoria and NSW became fully apparent. They have assumed that after the six-week lockdown in Melbourne, everything will be fine again.
That’s quite an assumption, especially because those two states account for more than half the national economy.
A less complacent assumption would have been that, in the many months likely to pass before a vaccine is widely available, several further major setbacks could occur and delay the return to confidence by consumers and businesses that normal economic times had resumed and it was time to get on with spending and investing.
If so, the government might have a lot more spending to do to keep the economy above water until the pandemic’s “once-in-a-century shock” to the economy has passed.
Were you shocked by the news of the highest budget deficits since World War II, leading to net public debt already up to $488 billion and expected to hit $677 billion by next June?
Such shock seems to have been the main goal of Thursday’s budget update. The government’s spin doctors announced the fate of both the JobKeeper wage subsidy scheme and the temporary doubling of the JobSeeker unemployment benefit two days earlier so as to now heighten public concern about all that money being spent, and get us to accept the government’s decision that spending should be wound back pronto.
And that’s what Morrison announced on Tuesday – though you could be forgiven for not noticing it through all the spin. The government had gone for weeks threatening to end both schemes in September.
So when Morrison announced that they would be continued for another six months, in modified form, there was a sigh of relief. Few people noticed that the threatened “fiscal cliff” would now be just a precipitous incline.
It’s estimated that two-thirds of companies – and their employees – will be off JobKeeper by early next year. Which will be fine provided the economy bounces back as strongly as the government seems to believe it will.
But Treasury’s forecast that the economy will grow by 2.5 per cent in 2021 seems optimistic to me – and in any case, wouldn’t be sufficient to do much to turn around the 870,000 jobs lost between March and May this year and the million workers who saw their hours cut.
What seems clear is that the government is anxious to rein in the growth in its spending so as to limit the growth in its debt. What’s much harder is to find economists who agree that, with the economy’s prospects still so worrying, now is the time to be cautious and pull back.
A poll of 50 leading economists, conducted by the Economic Society of Australia, found that 44 of them agreed the government should use its budget to boost demand during the economic crisis and recovery, “even if it means a substantial increase in public debt”.
And if Reserve Bank Governor Philip Lowe shares the government’s worries about debt and deficit, he’s got a strange way of showing it.
Only on Tuesday he said that “debt across all levels of government in Australia, relative to the size of the economy, is much lower than in many other countries and it is likely to remain so. The Australian government can borrow at the lowest interest rates since Federation.”
So it is “well placed to smooth out the shock to private incomes and support the economy through the pandemic”.
It all translates to economists telling the government it’s the “eye-watering” levels of unemployment it should be most worried about.
