Terry McCrann: Mind-boggling budget betting on vaccine
The unprecedented spending in the budget is both unavoidable and necessary. But it is building a debt mountain that will have to be climbed and is all based on the absolutely critical assumption that we get an effective vaccine, writes Terry McCrann.
Terry McCrann
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In all the mind-boggling, completely unprecedented numbers, everything and I mean everything, comes down to one really extraordinary number – the $677bn the federal government says it will spend this year.
How extraordinary?
Well, it amounts to more than $26,000 for every single one of the 26 million of us – over $100,000 for a family of four.
It’s up a stunning $199bn on the $478bn the government spent just two years ago in the 2018-19 fiscal year.
It is much more than double – yes, DOUBLE – the $316bn that Wayne Swan splashed out in his, at that time, utterly unprecedented ‘go hard, go early, go to households’ 2008-09 budget year spending spree to fight the Global Financial Crisis.
In just two years Josh Frydenberg’s spending has leapt by a staggering 39 per cent in real terms – an increase only matched once before in our entire fiscal history, at the peak of the crazy spending of the Whitlam government in the mid-1970s.
It means the federal government will be spending 35 per cent of our entire GDP this year. We thought Swan was a big-spender when his 2009-10 budget spent 26 per cent of GDP.
This is a measure of just how much money the government is throwing at fighting not only the worst recession in nearly 100 years, but also the weirdest.
It is the weirdest because it is the first recession that was actually ORDERED by government, both state and federal, as they ORDERED businesses to close, as they ORDERED people to lose their jobs.
So yes, the spending – from JobKeeper and JobSeeker, to the money being poured into infrastructure and dozens of other areas – is unavoidable and indeed necessary.
But it is building a mountain that WILL have to be climbed – because, like anyone’s spending, whether by you individually, by businesses, or indeed government, it can only be covered in one of two ways.
You either get the money from income – for government that means taxes – or you borrow. Right now the government is borrowing and borrowing big time.
This year’s deficit is $214bn. In these two years of peak-virus, the deficit adds to just shy of $300bn. Over the five years, 2019-20 to 2023-24, the deficits will add to another mind-numbing number of $566bn.
All of that will have to be borrowed. Total debt will go straight through $1 trillion – that’s $1000bn or around $40,000 for every one of us. Net debt will approach the trillion – thank goodness for small mercies like Peter Costello’s Future Fund.
Right now, borrowing is cheap. The government will pay just 1-2 per cent interest on all that debt. But that cannot last – not if we ever want to, if we can ever, return to something like normality.
Spending will fall as things like JobKeeper end. But Frydenberg is basically betting on a strong economy to cut the spending – and boost tax revenues.
He’s also saying “trust us” to start serious cutting. He says spending will be slashed to ‘just’ $564bn next year and the deficit will halve, and keep falling.
Hmm. It is also critical to understand that all these figures are built on the most optimistic – and again, also the weirdest – assumption that we have ever seen in a budget.
They assume that the economy will get back to some sort of normality – that’s not weird; every budget assumes that, usually TOO-optimistically.
But this budget builds all that on the absolutely critical assumption that we get a vaccine. And a vaccine that WORKS and is deployed EVERYWHERE, across the world.
If we don’t, well …
READ MORE:
CALCULATOR: HOW NEW TAX CHANGES AFFECT YOU
THE PLAN TO GET VICTORIANS BACK TO WORK
Originally published as Terry McCrann: Mind-boggling budget betting on vaccine