The pandemic blew the tires off that old Coalition debt truck

Josh Frydenberg, a Victorian, wore a surgical mask as he walked from his office in parliament to a committee room to deliver the government’s economic statement.

The treasurer had already had to obtain permission from the ACT government to travel to Canberra.

Symbolic reminders, as if anyone needed them, that Victoria holds the key to whether the disastrous budget figures Frydenberg presented on Thursday represent the floor beneath this crisis, or just a prelude to a whole even scarier.

Frydenberg describes the numbers, including a projected deficit of $184.4 billion for this fiscal year, as “mouth-watering.”

For the millions out of work or precariously supported by JobKeeper, the most frightening figure will be 9.25% – the expected peak in the unemployment rate, to come by the end of the year. (Of course, that will be an understatement – ​​Frydenberg told us the other day that the actual unemployment rate had already exceeded 11%).

For these people, as well as the many others on reduced incomes, this will be the darkest Christmas imaginable.

Read more: Five things you need to know about today’s economic statement

But in this pandemic, Christmas is an eternity away, because there is so much in the air, as the economic statement indicates. Crucially, this assumes Victoria’s lockdown only lasts the intended six weeks. If things get bad, it could be extended; at worst, containment could be tightened.

Then there’s NSW, which is holding the line on cases but on the razor’s edge.

With Victoria exposed as the weak link in the country’s health response, the Andrews government is facing deserved criticism. He failed in quarantine; his research effort was inadequate; there has been conflicting information about the isolation.

The virus is running through Victoria’s aged care facilities, both staff and residents. Indeed, the failure to protect this sector raises questions at the national level, given that the likely problems with its workforce should have been dealt with earlier and better.

If Victoria’s crisis worsens, the numbers in the economic statement will need to be drastically revised in the October budget and more money spent.

Even if the health situation does not worsen, it will be incredibly difficult for many people as they compete for a limited pool of jobs, and for many businesses, some of which will not reach that “other side”.

Scott Morrison has received deserved praise for his handling of the pandemic and, as things stand, this week’s decisions seem appropriate.

Despite earlier hopes of a ‘rollback’ from the government, the extensions of JobKeeper and the coronovirus supplement to JobSeeker were key to preventing the economy from falling off that dreaded ‘cliff’.

From October, the government is planning cuts to reduce payments; moreover, JobKeeper will be two-tiered.

Critics say the cuts will be premature, but assuming the economy is in transition, some setback is reasonable. If the virus escapes us, that will be another story.

The economic statement encompasses, of necessity, debts and deficits of massive proportions. Net debt is expected to rise to $677.1 billion by the middle of next year, or 35.7% of GDP (in 2018-19 it was below 20%).

If someone had told the Coalition when they were elected in 2013 that they would preside over such a high level of debt, let alone its virtues, they would have been laughed at in court.

But as Finance Minister Mathias Cormann said, “What was the alternative? Australia is also in a much better position than many other countries to manage debt, given that it started with a low proportion of GDP. In addition, funds can be borrowed very cheaply.

A pragmatic Morrison doesn’t care to pull that old junkyard “debt truck”, its tires ripped off, now it’s unfit for use.

In purely political terms, Morrison is in a good place (which doesn’t mean it’s necessarily going to last). During the pandemic, people looked to governments; historically low levels of trust have increased. It might not stay that way the long way to go, but it has helped the government so far.

The Morrison government faces criticism, but it is muted or, to some extent, powerless.

Read more: Budget deficit to hit $184.5 billion this fiscal year, unemployment to peak at 9.25% in December: economic statement

The muted version comes from the Labor Party, which chooses the contours of the government’s actions, while approving the flagship measures. This is about the only path the Albanese opposition can take; in these desperate times, Labor is constrained to the margins of relevance.

More interesting perhaps is the discontent on the right, which includes hardline government supporters in the comments.

Many of those critics were beside themselves, saying the government had massively overreacted to the virus. They would have reset the balance weighing on health and the economy to strongly favor the latter. The threat of COVID-19 has been greatly exaggerated, they insist, underscoring how mild the disease is to most who catch it. For these critics, the numbers in the economic statement are horrendous.

The argument of those on the right is wrong in political terms, and certainly not where the general public sits. If COVID-19 produced a large death toll, the economy would collapse much more. It is fanciful to think that activity and investment would oscillate happily.

Morrison has every intention of moving forward with a return to some sort of economic normalcy. But he also accepts the imperative of health when the circumstances oblige him. He didn’t attack Victoria’s new lockdown. Indeed, he has stopped castigating journalists for using the term “lockdown” (of which there are different versions).

Once the economic statement is released, attention will turn to the budget and the reform agenda.

This week we received another strong signal on the latter, with Morrison signaling again that he is determined to take advantage of the crisis to achieve long-term flexibility in industrial relations.

He initiated a process of negotiation on labor relations bringing together companies, unions and the government. As he seeks agreement, it is also about legitimizing the pursuit of change.

“We took a highly consultative approach,” he said. “But none of us are naive enough to think that this will lead to full agreement on all measures.

Read more: These budget numbers are shocking, and there are worse ones in store

“I can assure you that we will come up with what we think is best for the Australian economy and for the Australian people. … We will seek to legislate this through parliament.”

Morrison insists that the economic statement is not a mini-budget. He is right. This is an update to the budget figures – though unlike any we’ve seen – plus the expansion of existing programs. The decisions ahead will actually be harder to make than this week’s and, in some cases, a much harder sell.

Comments are closed.