The Morrison Government handed down the 2020/21 federal budget last night, which gave us a bit of an insight into exactly how fucked we are as a country.
Australia’s deficit will increase to a whopping $213B by the end of this financial year, before reaching a high of $966B in debt by the year 2024. In simple terms, it feels like we’re up shit creek without a paddle.
“This is a heavy burden but a necessary one to responsibly deal with the greatest challenge of our time,” Treasurer Josh Frydenberg said in Tuesday night’s announcement.
However, the budget papers themselves say that we don’t have to worry too much about the staggering amount of money the government is borrowing.
The government’s defence of this record debt is that it’s both sustainable and “low in comparison to most other advanced economies”. It argues that it’s necessary to go into debt in order to spent our way back out, similar to how Australia managed its last record deficit post-WWII.
It feels like a huge amount of money and is all very overwhelming, but the government reckons it’s not worth stressing about. If you’re feeling confused and overwhelmed by it all right now, you’re definitely not alone. So what does it actually *mean*?
Well basically, the state of the economy right now is almost entirely dependent on when and if we can get a coronavirus vaccine. To put it simply, the situation sounds really complex and confusing because it is – we’re essentially talking in “what ifs” right now.
If we can get a vaccine before July 2021, the Budget predicts that economic activity could increase by up to $34 billion (that’s good). However, if there’s no vaccine and we continue life as we know it currently, economic activity could plummet by $55 billion over the next two financial years (that’s bad).
So what does this mean for our future? Well, according to Grattan Institute’s Associate of Budget Policy and Institutional Reform Tom Crowley, we’re not as fucked as first thought.
Basically, Crowley explains that although the number (close to $1 trillion) is big and scary, we probably won’t notice it all that much when we’re paying it off.
“It actually really doesn’t matter nearly as much as some commentators have suggested, I think the fact that it is this big $1T number makes people widen their eyes a little bit,” he told PEDESTRIAN.TV.
“I think it isn’t, really. It’s not at a level that we should be worried about.”
According to Crowley, the economic impact of *not* spending this money and letting unemployment continue to skyrocket would be much worse for young people and the economy as a whole.
“We actually *need* to spend this money now, and the consequences for young people of not doing enough stimulus now would be much bigger than having this debt burden,” he said.
“I think the cost for young people of not spending enough now is a much more pressing concern than the debt.”
Thankfully, he also explained that although $1 trillion sounds like a huge, terrifying amount of money, it’s actually reasonable and “manageable”, especially compared to other countries like the US and Japan, which entered the pandemic in a much worse position.
“The interest cost has never been lower than it is now, and it’s actually lower than inflation, which is crucial because that essentially means (in real terms), that the interest rate is essentially negative,” he said.
Unfortunately, that doesn’t mean free money. However, the interest rate (which is a record low of 0.84%) is lower than the current rate of inflation, which means it’s actually the best time for the government to borrow money.
“There’s never been a better reason to take on debt and there’s never been a cheaper time to do that,” he said.
*lets out a giant sigh of relief*
We’re by no means in the clear when it comes to the economy, we’re still well and truly in a recession and we’re all going to feel it over the next couple of years. But if we’re solely speaking about the huge debt that’s looming over the country right now, it’s probably not worth personally stressing over.
