It has been a Morton’s Fork for Scott Morrison since the pandemic began. Spend too much or spend too little.
No prize for guessing which of the equally objectionable options the Prime Minister chose.
Today’s sea of red numbers reveal the consequences of that decision. As Josh Frydenberg confessed, the numbers are “eye-watering”.
It’s hard to put a silver lining on a gross debt approaching $1 trillion and deficits in the hundreds of billions. But Morrison doesn’t have the luxury of hindsight. He will maintain that it was the right call. And it was.
If he had chosen the option of prudence, to protect the budget rather than opening the sluice, he risked doing far more harm to the economy, and in turn the budget.
More importantly, a lot more people would be without a job today.
In other words, as hard as it is to imagine unless one considers Singapore’s 10 per cent fall in GDP in a single quarter, today’s numbers could have been a lot worse.
While historical comparisons to World War II and the Great Depression are in vogue, more recent history gives a clue to which was the right way to go.
According to prominent economist Chris Richardson, during the GFC the countries that spent too little were the ones hit the hardest in the end … the US included.
Here’s another, and perhaps perverse historical context as pointed out by the Bank of England in April.
Global interest rates are now lower than any other time in the past 5000 years, before the Pyramids were built, and history began to be recorded.
Never before has there been a better time to borrow money, especially if you’re a government issuing securities to raise cash and battle a once-in-a-century economic disaster.
And at a time when we had a balanced budget and low debt.
Some economists, posing as epidemiologists, say the government overreacted to the scale of the health crisis and the economy has been sacrificed for the sake of a few people who would have died soon anyway.
Most people disagree. The consistent theme borne out in Newspolls conducted for The Australian since the crisis began show unprecedented support for Morrison and the state and Territory leaders. They believe the government has their back and will do whatever it takes to protect the engine room of the economy, which is people.
It is therefore unlikely that the financial reconciliations are going to change that sentiment, confirmed in the consumer confidence and retail spending numbers, which would paint a different picture if people had no faith in the government’s management of the crisis.
This in itself has produced the most bizarre of situations where the electorate has for the first time in a decade given leaders the confidence to govern.
Yet there is a double-edged sword for Morrison in all of this. Response versus legacy.
Among the chief concerns of the electorate more broadly, after fears of actually contracting the virus, is the level of government debt that has consistently appeared as No 2 on the list ahead of losing your job or having your superannuation balance smashed.
While it may be irrational, and under the current circumstances a bit hysterical, it nevertheless points to a political consideration, rather than a fiscal or economic one, that Morrison will have to manage.
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