Debt and deficit
Josh Frydenberg postpones budget repair – for now
In an important speech today, ahead of one of the most critical budgets ever to be delivered in this country, Treasurer Josh Frydenberg gave up on projecting a return to surplus soon, conceding that it was no longer prudent for the government to aim to “deliver budget surpluses of sufficient size to significantly reduce gross debt and eliminate net debt by the end of the medium term”. That might sound obvious, given that the government has committed some $314 billion (or 16 per cent of GDP) to support the economy during the pandemic, and there are expectations that the budget deficit in 2020–21 will exceed $200 billion. But Frydenberg signalled that the government had a two-stage plan for the recovery. In the first phase, among other things, the government will “continue to provide temporary, proportionate and targeted fiscal support, including through tax measures”, until unemployment falls below 6 per cent and is on a clear path back to pre-COVID levels. While last month’s unemployment rate of 6.8 per cent was much better than expected, the jobless figures are likely to get worse due to Victoria’s second wave. And, as The Australian reports, Treasury secretary Steven Kennedy has previously said it could take four or five years before unemployment drops below 6 per cent.
Only in the second phase will the government focus again on budget repair, Frydenberg said, with “a deliberate shift from providing temporary and targeted support for the economy to stabilising gross and net debt as a share of the economy”. A key plank of the Liberals’ economic philosophy – capping the proportion of taxes to GDP at an arbitrary 23.9 per cent – will be retained. “Higher taxes are a road to less investment, fewer jobs and a weaker economy,” the treasurer said. “Higher taxes will slow the recovery and make our economy less competitive.”
It’s an article of faith. But this is where Frydenberg is completely unconvincing, because the Coalition has been talking about “jobs and growth” for years, hoping Australia can cut and deregulate its way to prosperity. And it’s the same again today: “We want to drive down the cost burden on businesses that employ Australians, so we are locking in affordable, reliable and secure energy, and cutting red and green tape.” On energy, that apparently means “more and cheaper gas”. On industrial relations, that means a fast-tracked negotiation between business and unions that is already fracturing, as the ACTU noted in a statement this afternoon. And, as the treasurer announced, it also means reforming insolvency laws that would adopt elements of a US-style “Chapter 11” bankruptcy process that “will enable small-business owners to remain in control, provide them with an opportunity to restructure and ultimately increase their chances of surviving this COVID crisis”. That’s code for allowing small-business owners to shaft creditors – be they employees, suppliers or the tax office – and, given that the problem of phoenix companies avoiding their liabilities is already widespread, that could be a mixed blessing.
Shadow treasurer Jim Chalmers said it was for the government to explain why much lower debt-to-GDP levels (which the Coalition described as a “disaster” a decade ago during the GFC) were now “manageable on their watch”. Chalmers’ strongest language was reserved for the imminent cuts to JobKeeper and the coronavirus supplement to JobSeeker. “It’s absolutely mad for the government to be withdrawing support via JobSeeker tomorrow and JobKeeper on Monday when the economy – and particularly the jobs market – is this weak,” said Chalmers. “When the government stands up in the coming days and releases the Final Budget Outcome, they should also release the modelling which says how many jobs will be lost by their premature withdrawal of support from an economy that still needs it. Some businesses are recovering; many are not. The economy’s too weak for the government to be cutting these important payments at this time.”
Frydenberg effectively acknowledged today that snapping back to austerity too soon would damage the economy. If he were to put that philosophy into action, he would increase JobSeeker permanently.
A spokesperson for Aged Care Minister Richard Colbeck supports a call for the aged-care royal commission to investigate the handling of tenders, including a $5.8 million contract given to workforce-provider app Mable, which is backed by a network of investors including Liberal Party donors.
In evidence to the state inquiry into Victoria’s failed hotel quarantine regime, Health Minister Jenny Mikakos joins her colleagues – Jobs Minister Martin Pakula and Police Minister Lisa Neville – in feigning total ignorance.
Kids’ radio: live from lockdown
Staff and students at Brunswick North West Primary School have
endured one of the longest school shutdowns in the world, and they’ve created their own community radio station to help each other through it. Today, Ruby Jones talks to the students and the teacher behind BNWPS radio.
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Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is the author of Body Count: How Climate Change Is Killing Us, Inside the Greens and Born To Rule: The Unauthorised Biography of Malcolm Turnbull.
In an important speech today, ahead of one of the most critical budgets ever to be delivered in this country, Treasurer Josh Frydenberg gave up on projecting a return to surplus soon, conceding that it was no longer prudent for the government to aim to “deliver budget surpluses of sufficient size to significantly reduce gross debt and eliminate net debt by the end of the medium term”. That might sound obvious, given that the government has committed some $314 billion (or 16 per cent of GDP) to support the economy during the pandemic, and there are expectations that the budget deficit in 2020–21 will exceed $200 billion. But Frydenberg signalled that the government had a two-stage plan for the recovery. In the first phase, among...
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