Red ink to flow with high hopes

“After a decade of budget deficits, Josh Frydenberg will tonight announce the days of red ink and fiscal rage are finally over,’’ last year’s pre-budget editorial tipped. It was a different world. On Tuesday at 7pm, in the wake of a once-in-a-century (we hope) pandemic, a torrent of red ink will flow from the despatch box, for good reason — to create the conditions for recovery by boosting business and consumer confidence, investment, spending and jobs. The nation’s official debt ceiling will be lifted beyond $1.1 trillion dollars, as Simon Benson reports on Monday. The deficit will balloon to $210bn. For all this, our gross debt-to-GDP ratio of about 55 per cent, the highest since the 1950s, will remain one of the lowest among developed countries.

In all this, the flicker of fiscal prudence is not forgotten. “Jobs recovery itself will repair the budget,’’ Finance Minister Mathias Cormann said on Sunday. It will help, over what will be a long, slow process. Budget measures announced or expected are wide-ranging — subsidising half the wages of 100,000 apprentices from October 5, bringing forward generous personal tax cuts, a boost for pensioners and investment in manufacturing and technology. The plan to extend the First Home Loan Deposit Scheme to an extra 10,000 first-home buyers who will be able to buy newly built homes with low deposits will be popular with some. But it has the potential to distort the market with unforeseen consequences.

More importantly for jobs and removing future capacity constraints, another $7.5bn will be spent on transport infrastructure. Following reports the McGowan government in Western Australia is set to return a $1.7bn surplus for 2019-20 in its budget on Thursday, Senator Cormann was right to argue the states, including WA, should do more to support jobs and business. In August, Reserve Bank governor Philip Lowe told the states they should effectively double outlays on infrastructure by spending an extra­ $40bn, especially on smaller projects that create jobs. Given the seismic shift in the nation’s financial position and a sensible recovery plan, avoiding more waves of COVID-19 will be critical.