Australia facing 60 years of pain

Josh Frydenberg and Scott Morrison have saddled Australia with a century of debt.

Most Australians alive today, including the Treasurer and Prime Minister, will be long dead by the time the bill for Tuesday night's coronavirus cash splash is fully paid off.

A baby born on Budget night will be nearing retirement.

"On very optimistic projections, we don't think Australia will be debt-free until the early 2080s," said Cian Hussey, research fellow at conservative think tank the Institute of Public Affairs.

The Federal Government has committed to a record $213.7 billion deficit this year as it attempts to borrow and spend its way out of Australia's first recession in nearly three decades - brought on by devastating COVID-19 lockdowns.



By June 2024, Australia's gross debt is expected to reach an eye-watering $1.138 trillion, with net debt peaking that year at $966.2 billion - equating to 36 per cent of gross domestic product (GDP).

Treasury forecasts gross debt will stabilise at 55 per cent of GDP over the medium term.

"This is a heavy burden, but a necessary one to responsibly deal with the greatest challenge of our time," Mr Frydenberg said in his Budget speech.

The IPA has modelled two scenarios, one in which gross debt peaks at $1.92 trillion in 2037, the budget returns to surplus the following year, and the debt is paid off by 2063.

The second scenario has debt peaking at $2.05 trillion in 2042, a return to surplus in 2046, and the debt paid off by 2080.

In the first scenario, GDP stabilises at 5 per cent, whereas in the second it settles at 3 per cent.

Mr Hussey told budget forecasts "tend to be optimistic" so it was "pretty depressing that the Morrison Government hasn't even tried to outline when we might see a surplus or pay down the debt".

"Will you ever deliver a surplus?" ABC 730 host Leigh Sales asked Mr Frydenberg on Tuesday night.

"I'm certainly not putting a date on that," Mr Frydenberg said.

The IPA modelling for both scenarios assumes that once the budget is back in the black, surpluses will be maintained at the Howard-era average of roughly 1 per cent of GDP. "If the government is very strict on fiscal responsibility and maintains that budget surplus, that gets us to gross debt being eliminated by 2080," Mr Hussey said.

"This is wildly optimistic, based on strong GDP growth numbers over the short to medium term, very strong fiscal responsibility over the medium to long term, and also assuming we don't have any other economic shocks."

He added, "We haven't really looked at a worst-case scenario."

Mr Hussey also hit back at the argument being made by the government and many economists that record-low interest rates mean now is the ideal time for Australia to borrow its way to prosperity.

Scott Morrison and Josh Frydenberg have saddled Australia with a century of debt. Picture: Sam Mooy/Getty Images
Scott Morrison and Josh Frydenberg have saddled Australia with a century of debt. Picture: Sam Mooy/Getty Images


"It sounds a whole lot, but the servicing of debt in the current environment with interest rates super low is very much manageable for the Federal Government," CommSec chief economist Craig James said in his Budget analysis.

"It's low in the historic sense, it's also low in a global sense, so we shouldn't be overly concerned - the main aim is to get back on our feet."

The Budget papers note that Australia's annual interest payments, despite being forecast to rise from $16.6 billion this financial year to $17.5 billion in 2024, will actually fall as a share of GDP from 0.9 per cent to 0.8 per cent, "reflecting historically low interest rates".

"What's been disappointing is to see people pointing to the current cost of borrowing over 10 or 15 years and say because that's low, we don't have to worry about how much debt we get into," Mr Hussey said.

"It doesn't matter what the cost of borrowing is over 10 years, it matters what the cost of borrowing is for the better part of the next century. This is just economic self-harm to put ourselves in such a bad situation. Before COVID we already had $556 billion in gross debt, so we were already in a pretty bad situation debt-wise."

The Federal Budget, which will see spending this year alone soar to $677 billion, forecasts that the deficit will be pruned back to a mere $66.9 billion by 2024 - but bases that on some very rosy assumptions about the post-pandemic recovery, most notably the nationwide rollout of a COVID-19 vaccine next year.

"There is absolutely no certainty we'll have a vaccine," Mr Hussey said.

"What we need to do is move away from this elimination strategy and towards a strategy based on medical capacity - back to 'flattening the curve', which was the right strategy from the start. Pursuing no COVID cases means no hope for Australia."

The IPA last month published a research paper calling for a move towards a "risk-based, proportionate, and targeted medical capacity" strategy, arguing the lockdowns had caused a "humanitarian tragedy that will last for generations".

Mr Hussey said ending coronavirus restrictions and allowing life to return to normal should have been the first thing on the agenda.

"There's no point offering business stimulus packages when they don't even have the confidence they can open their doors and remain open," he said. "The government must commit to a strategy where they don't pursue devastating lockdowns whenever outbreaks occur."

He said the "political and bureaucratic elites who are completely insulated from the costs of the lockdowns" had imposed restrictions and then kept them in place for "far longer than is necessary" because they have "no skin in the game".

"We've even seen public servants receiving pay increases," Mr Hussey said.



Originally published as Australia facing 60 years of pain