COVID-19 debt mire set to bite

Increasing numbers of Australians emerge from lockdown to return to their workplaces this week. They do so facing the daunting prospect that without economic reform, 20-year-olds will be pushing 40 by the time the federal budget returns to surplus and heading for 60 before the nation’s surging debt is repaid. The Morrison government’s COVID-19 emergency response has already sent federal government debt climbing to $430bn at the end of March, about $37bn higher than forecast before the pandemic. By the end of June, it will be billions of dollars higher again.

Economic policy, political culture and the structure of the federation are not among the abiding interests of most people born since 1980, much less those born in 2000 or later. But Generation Debt has a major stake in how political leaders, business and unions manage the economic transition out of the coronavirus crisis. Decision makers need to be clever and farsighted in adopting strategies that minimise the debt burden facing younger people and future generations, who might need to deal with challenges that are almost unimaginable now.

Tax policy needs attention. On Monday, PwC chief economist Jeremy Thorpe tells Adam Creighton the tax system “was not equipped to adequately support the growth required” as the nation makes its way back into the black. At the same time, PwC warned against any rush to reform, given the weak state of the economy as households and businesses deal with change on many fronts. In fostering job creation, Josh Frydenberg and his state counterparts have an excellent opportunity to minimise or abolish payroll tax through the newly reformed national cabinet system that will replace COAG. NSW Treasurer Dominic Perrottet has taken a lead in advocating that the states co-operate with Canberra to reform the system.

Future budgets, federal and state, will need hard decisions on revenue raising. Government must also turn off the tap on largesse such as free childcare as soon as it is prudent. But growing the revenue base by growing the economic pie is the key to producing and earning our way out of debt. A competitive tax rate for large corporations, better tax breaks for investment, cost-efficient energy policy driven by pragmatism not ideology, better skills training, less onerous but smarter regulation and workplace relations that benefit employers, employees and encourage the hiring of more workers are vital. Scott Morrison has at least persuaded business and unions to “put down their weapons’’ to discuss moving past business as usual. But the hard part starts now. As they consider issues of “no disadvantage’’ and workers being “better off overall’’, they should remember that no one is better off if they cannot find work.