Australia is unlikely to be debt-free until 2080 as a result of the lockdowns implemented in response to COVID-19. The much anticipated 2020-21 Budget does not even attempt to highlight a path out of debt and deficits, leaving mainstream Australians with little hope that the bill for the largest public policy failure in the nation's history will be paid off in their children's lifetimes.
My modelling has estimated that it could take until 2045-46 for the Commonwealth government to deliver a budget surplus, with total debt expected to peak at $2.05 trillion and not be paid off until 2079-80.
This modelling is based on a scenario where nominal gross domestic product grows at an average rate of 3% per year, and where the federal government is committed to fiscal responsibility by pursuing Howard-era budget surpluses equivalent to about 1% of GDP.
In reality, there is little hope that any Australians alive today will be around to see the nation released from this debt burden. And if there is another economic shock between now and 2080, which there almost certainly will be, the debt and deficit situation can only get worse.
All Australians will be paying for the lockdowns over their lifetimes. From the young people who have disproportionately suffered and are at greatest risk from economic "scars", to small business owners who have lost everything, mainstream Australians are suffering. Meanwhile, the public sector continues to grow, with about 20,000 new jobs added since March, while the productive, private economy has been hammered. As the nation is plunged further into debt, senior bureaucrats and politicians who have no "skin in the game" are happy to maintain a fanciful strategy of elimination. Not one of them has lost their job, and many have received pay rises. It's no wonder they see little that is wrong with the lockdowns.
The only path out of this catastrophic debt situation is for the Morrison government to pursue real liberal reforms based on reducing the size of government and allowing the private sector to flourish.
Rather than subsidising companies that hire young people receiving JobSeeker, for example, the Morrison government should engage in structural reform of the industrial relations system. Carving small businesses out of the Fair Work Act 2009 would be a far more efficient way to create jobs than by betting against the current policy settings.
The bloated public sector should be also reduced, and wages for senior public servants and politicians earning more than $150,000 should be frozen until the unemployment rate is back to around 5%. According to a poll published in April, 74% of Australians want public servants and politicians earning over this amount to take a 20% pay cut to demonstrate that we are all in this together.
Structural reform and massive cuts to red tape are vital for getting the economy back on track. This means reducing the $176 billion red tape burden, which robs Australians of job opportunities and pay rises each year, and permanently reducing the size and scope of the government.
One of the only positive features of the Budget was that Stage 2 personal income tax cuts were brought forward from July 2022 to July 2020, meaning that workers will receive an almost–immediate boost to their take-home pay. While this was a welcome move, the Morrison government should have brought Stage 3 forward as well. Stage 3 will be the most significant reform to the tax system in recent years, providing a significant step towards a more efficient and fair income tax arrangement. The cuts were voted for at the 2019 election and have since been legislated, so it would make perfect sense to bring them forward in recognition of the fact that individuals and families know how to spend their own money better than government.
Commonwealth budgets are likely to remain in the doldrums for the next half a century. The only way out is for the Morrison government to commit to liberal values, reduce the size of government, unleash the economy through industrial relations reform and red tape cuts, and to practice fiscal responsibility.
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