Debt and deficit doomsayers face a new reality: only jobs will matter

Treasurer Josh Frydenberg in Parliament House on Friday. Picture: Gary Ramage

The government’s Economic and Fiscal Update on Thursday was a terrifying document.

For a start Treasury is saying we’re in a depression instead of a recession (two consecutive years of negative GDP, which is a common definition of depression, as opposed to a recession’s two consecutive quarters), which is pretty alarming in itself.

But unless things change in the full budget in October, it looks like at least two million people will have their incomes cut by between $225 and $550 a week between September and March and the unemployment rate will be 15 per cent next year.

Add this to the fact that about 800,000 bank mortgage deferrals are due to run out about half way through that period, and it’s not hard to feel a bit gloomy about the prospects for the Australian economy, the housing market and the solvency of the banks, not to mention the happiness and sanity of more than 10 per cent of the population and their families, as they slide into poverty.

In Thursday’s document, Treasury predicts that unemployment will still be 9 per cent in March next year when the JobKeeper Allowance is due to go to zero from the reduced rate of $1000 per fortnight. The JobSeeker Supplement will have already gone to zero from the reduced rate of $250 per fortnight three months earlier.

That 9 per cent unemployment rate is a forecast of the “official” ABS number rather than the “effective” rate, which the Treasurer said on Thursday is already 11.3 per cent, or 1.5 million souls. That is coming down, but is unlikely to be lined up with the official rate by March, so perhaps 1.25 million “effectively unemployed” by then.

That doesn’t count the 3.5 million now getting the JobKeeper Allowance. How many of their employers will be able to start paying them their full salary again in March? A very optimistic forecast would be that 80 per cent of them will be fine.

That would leave 750,000 or so heading to Centrelink for the JobSeeker payment, now reduced back to its old rate. Add that to the 1.25 million already unemployed, and you get 2 million people scraping by on $40 a day, a lot of them with a mortgage to service.

Here’s where your correspondent starts pacing up and down and muttering into his mask about the coming apocalypse, drawing worried looks from the rest of the locked-down family.

But wait! Happily, the Coalition has arrived, kicking and screaming perhaps, at the place where deficits and debt don’t matter, and don’t have to be paid back.

When asked by a journalist on Thursday about how and when taxes would be increased or government spending cut to pay off the “whacking great record debt”, Treasurer Josh Frydenberg talked about growing the economy. Tick.

And when asked about whether he feels comfortable about increasing the debt further if necessary, he said, “our first concern is about the public’s health”, and then “it is about jobs”. Tick again.

Also the AAA credit rating has been reaffirmed by all three major credit rating agencies and notwithstanding gross debt of $851.9bn, or 45 per cent of GDP, there is no reason to think that’s about to change. Both the Treasurer and the Finance Minister made it clear that they are relaxed about this, and don’t think it will change.

How everyone’s feeling in 10 years, when the budget is still in deficit as it was 10 years after the GFC, with the debt well above a trillion dollars, is another matter, although it’s hard enough to predict 10 months ahead these days let alone 10 years, so forecasts like that are irrelevant to attitudes now. Most importantly, everyone on both sides of politics well understands that when campaigning begins for the 2022 federal election, it will be jobs, not debt, that decides who wins.

When Paul Keating fought his second election on May 21, 1996, unemployment was still 8.4 per cent four years after the recession ended. He lost.

At this stage Treasury is only forecasting unemployment as far ahead as June 2021, saying it will be 8.75 per cent. Will the official jobless rate be below 8 per cent in May 21, 2022 — the latest date for a half-Senate election?

That’s difficult, and if the government gives even a moment’s thought next year to deficit and debt instead of jobs and health, it will still be 8.4 per cent as it was in March 1996, and Scott Morrison will lose too.

It means that between now and this time next year, the Coalition government will do whatever it takes to ensure that unemployment doesn’t rise and preferably gets below 8 per cent. To do otherwise will be suicide.

What happens when Australia’s party of fiscal conservatives fights an election with a deficit approaching $200bn behind it, probably another $100bn ahead of it and a “whacking great record debt” that’s still rising?

Nothing, and everything.

Nobody will care. The number of “debt-worriers” is shrinking by the day and will be zero when the 2020-21 depression is confirmed mid-next year.

I’m not suggesting we’ll be having a Modern Monetary Theory party with the debt being monetised away by the RBA — governor Philip Lowe made that pretty clear on Tuesday — but paying it back with surpluses won’t be part of the discussion either.

And the national conversation about budgets and debt will have been transformed.

Alan Kohler is the editor in chief of Eureka Report