Coronavirus crisis projected to add $620bn to Australia’s net debt, PBO says

COVID-19 will give the country an additional net debt of up to $620bn by the end of this decade, according to Parliamentary Budget Office projections.

Prime Minister Scott Morrison at a press conference at Parliament House in Canberra. Picture: AAP

Australia’s legacy of the COVID-19 crisis will be additional net debt of up to $620bn by the end of this decade, while the budget deficit will peak at nearly $200bn in the next financial year and will remain in deficit through to 2030, according to new Parliamentary Budget Office projections.

The PBO estimates are based on the Reserve Bank of Australia’s three economic scenarios outlined last month in its Statement on Monetary Policy.

“Our analysis shows that the impact of COVID-19 may result in Commonwealth government net debt in 2029-30 being between 11 and 18 per cent of GDP ($500bn to $620bn) higher than it would have been otherwise,” the PBO reports reads.

Click here to read the PBO report

“At last December’s Mid-Year Economic and Fiscal Outlook, net debt was projected to fall to 1.8 per cent of GDP by 2029-30.”

The PBO said the higher debt burden is “largely the result of lower revenue and significant borrowing in 2019-20 and 2020-21 to fund the Government’s pandemic response measures”.

“While the impact of these policies on the underlying cash balance reduces over time, the impact on net debt endures through to 2029-30.”

The PBO noted that Australia’s net debt relative to national output is still expected to remain lower than most developed countries.

Scott Morrison said the PBO report represented a “serious estimate” that highlighted the financial impact of $150bn in projecting spending on direct fiscal support.

But the Prime Minister emphasised that the budget office outlook also included “a massive hit on the revenue side that is very, very significant”.

“That is why, more than ever, we have to be careful about the expenditure we are engaged in, that (the spending measures) are well targeted. We can’t leave long-lasting heavy burdens.

“The best way to raise revenue is to get people back into jobs and the economy moving again.”

After peaking in 2020-21, the budget deficit will improve dramatically in the next financial year to around $60bn in the base case scenario, as government stimulus programs such as JobKeeper and the expanded JobSeeker end or are scaled back.

Still, the PBO projections do not have the budget back in black beyond the end of the decade.

The new budget projections come two days after national accounts confirmed the country was in the midst of its first recession in close to three decades, and shortly after the Morrison government announced a $688 million cash splash to help the construction sector.

The Australian has revealed that a number backbench Liberal MPs have raised concerns over the HomeBuilder program in the context of ballooning debt.

Liberal MP Jason Falinski on Friday morning told Sky News he was keen to see massive stimulus programs such as JobKeeper scaled back as much as possible.

Mr Falinski said it was “incredibly important we don’t waste other peoples’ money just for the sake of wasting it”.

“If we can save a billion dollars here and there, it’s a billion we don’t have to pay in the future,” he said – money which could be spent on education and health.

“If JobKeeper can end sooner rather than later, that’s something we could be very proud of,” although he said he expected the program to continue in a more limited form, targeting sectors such as transport and tourism which will be operating at “nowhere near their true capacity for some time”.