One of the first things that happens after an election is that an air of unreality is replaced with a stone-cold, sober look at reality.
This will particularly be the case after this election as the Labor party switches into government because the rush of promises from both sides will be replaced with a particularly unsavoury economic, fiscal and monetary picture.
The economy, having been surprisingly resilient during the shock of the COVID-19 pandemic, is being assaulted by rising inflation and the beginnings of resulting business failures as the sugar hit of stimulus payments dwindle.
While the unemployment rate is at radical lows, that indicates a very tight job market in which industries are struggling to get workers.
In aged care alone there is an estimated 60,000 unfilled positions, with very little planning on how to fill them, let alone add thousands of nursing shifts.
Interest rates on the rise, cooling the economy
On the monetary side there is little cheer, with the Reserve Bank of Australia now determined to follow the US Federal Reserve into a series of “normalising” rate rises designed to cool inflation but which will also cool consumer demand.
And fiscal policy – which seemed to have been forgotten in a welter of debt-fuelled multi-billion dollar promises – will assert itself very strongly.
While it might have seemed like Christmas during the election campaign, the reality is that the next term and many after it will be constrained by the mountain of borrowings, which are approaching $1 trillion and continuing structural deficits.
Debt and deficits forecast to keep worsening
Labor expects the next deficit to be $45.2 billion and accumulated deficits during its term to reach $231.9 billion – in other words, there will be no meaningful effort to repair the budget or make a dent in the mountain of debt.
That was effectively a bipartisan commitment during the election, with only marginally better deficits on offer from the Liberal/National Coalition.
That comes at a time when countries such as New Zealand are forecasting budget surpluses by 2025.
Some debt can be good, but how much?
Of course, there is an active debate about the appropriate size and level of government debt and it is true that government debt does have important differences to household debt – the main ones being the ability to “inflate” away the size of the debt over time, taxation powers to reduce the debt and the fact that the government will always be there.
A further argument is that government debt can be accrued paying for worthwhile national investments that will generate a meaningful return over time.
One fact that is unarguable though is that a large government debt – and Australia’s is quite large in both nominal terms and as a percentage of GDP – reduces the ability of a government to respond to any future crisis.
By accepting the current and forecast levels of debt and a structural budget deficit both sides of politics effectively agreed that it is ok to have a long term reduced capacity to respond to internal or external crises.
Debt tolerance is the path of least resistance
That is the path of least resistance given that tough spending decision are required to bring the budget back closer to balance and to start having an impact on the level of debt.
It is also possible that it won’t matter, if all of the economic ducks continue to line up neatly in a row.
However, with uncertainty around climatic disasters, international aggression and trade difficulties, the bipartisan lack of concern around economic matters such as debt and deficits is certainly a concern.
All of which is a longer way of wishing Anthony Albanese good luck as he assumes the mantle of Australia’s 31st Prime Minister.
He is likely to need it.