Treasurer Josh Frydenberg has put an enormous amount of faith in Australia’s private business sector as the key to producing jobs and economic growth to enable a remarkable recovery.
He is also providing an incredible amount of fuel to business to invest and go for growth with a $98 billion raft of personal and business tax cuts and write backs, instant asset write-downs and generous subsidies to employ more workers – particularly young and female workers.
If the Budget plan holds, Australia will transform from the current recession to 4.75% economic growth in just a year, which is one of the fastest and most ambitious turnarounds ever envisaged.
It is also quite achievable given the unique circumstances which caused this recession – a global pandemic which caused a deliberate economic shutdown of large slices of the economy followed by a patchy and uncertain path to recovery with the overhanging potential for more crippling lockdowns at any time.
COVID-19 assumption is a big one
One of the greatest assumptions in this Budget is that the COVID-19 pandemic is getting much closer to an end game – that a vaccine is around the corner and that we will be able to return to business and travel as usual during the current Budget period.
Every Budget has a weak point and this one alone has the potential to turn out to be massively wrong, with even the best predictions of scientists and epidemiologists subject to a massive asterisk when confronting a wily viral opponent.
Cost will be massive but serviceable
The other weak point of the Budget is of course the cost which, as predicted, is enormous with the deficit reaching $213.6 billion this year and the Budget staying in deficit for the foreseeable future.
Similarly, debt is set to continue ballooning, with gross government debt effortlessly accelerating through the trillion-dollar mark and well beyond while net debt reaches a peak of $703 billion.
Mr Frydenberg said net debt would peak at 44% of GDP in 2023-24, while gross debt would reach 51.6% of GDP in 2023-24 then stabilise at around 55% of GDP in the medium term.
The comforting thing about this is that if you are going to run such an unprecedented level of debt, there has never been a better time to do it.
Servicing costs at current interest rates mean that even this eye-watering amount of debt is eminently doable and actually requires a lower percentage of GDP to service than much smaller debt binges in the 1990’s but whether it is wise is something that we won’t know until well after the fact.
Go hard or go home
Realistically, there was little choice but to prime the pumps for growth and stimulate the heck out of the private sector because, ironically, it is only rapid growth that will begin to repair the underlying Budget numbers and start to make them look more respectable.
A bigger cake cures a lot of ills and Mr Frydenberg is betting very big on a sustained and sustainable economic recovery here that will not only leave many more Australians employed and businesses thriving but also lead to a recovery in the tax take.
The alternative of trying to shrink your way to greatness by keeping tight control over spending and deficit levels would certainly prolong and probably worsen the recession and so the traditional conservative take on budgets and deficits simply had to be jettisoned.
Deficits as far as the eye can see
The Budget bottom line is certainly going to look a bit wonky with deficits planned for a decade but in real terms the deficits in those later years could begin to look small if the overall Australian growth projections hold up.
Perhaps the most encouraging thing about the extensive raft of stimulus measures in this Budget is that they don’t rely on the government sector slowly and bureaucratically deciding on spending measures through regulated programs.
The cash will be put directly in the pockets of workers, pensioners and business owners and with JobKeeper and JobSeeker continuing to wind down, it will be the private sector that is charged with growing the economy and also with giving jobs to the unemployed.
Most jobs are in the private sector
That is as it should be given that the vast bulk of jobs are produced by the private sector and while the size of the Budget may have grown to the sort of percentages of the economy that we associate with events like World War 2, the actual expenditure of that cash will be up to individuals and businesses.
If businesses still won’t invest in new plant and equipment and jobs despite massive incentives then the Government won’t be spending the money but the chances are that business will grab the incentives with open arms and hopefully spend them more wisely than any bureaucratic government program ever could.
Now for the Senate – and vaccine makers
There are some tasks to be achieved in the meantime – the income tax cuts must be steered through the Senate and hopefully, the many boffins working away in labs around the world will come up with a workable and effective COVID-19 vaccine very soon.
The cost of no vaccine is estimated at 1% growth for every year it is not in place but the real number could be even higher so the fate of the next decade of Australian – and global – Budgets is tied firmly to the contents of some test tubes.
Rarely has scientific innovation played such a central role in securing the economy both now and well into the future.