As far as mistakes go, they don’t come much bigger than the Federal Government’s $60 billion JobKeeper miscalculation.
It really is a head scratcher how some of the best economic minds in the country could have miscalculated by such a wide margin.
It is refreshing in a way that the politicians – largely Treasurer Josh Frydenberg but also Prime Minister Scott Morrison – have taken the rap for a mistake that should have been picked up much earlier.
Because this really is a mistake that was made by public servants, probably in their undue haste to roll out these programs, so it is nice to see ministers carrying the ultimate responsibility rather than searching around for someone to sack.
Mistake should have been obvious much earlier
Even by monitoring the first payments it should have been obvious that JobKeeper was tracking closer to 3.5 million workers or $70 billion rather than 6.4 million workers at a cost of $130 billion.
No doubt there will be a big internal Treasury department debate over dodgy forms and miscalculations but rather than concentrating on the post mortem, the really big news from this mistake is that Australia is much better off than expected on two fronts.
More workers still in their jobs
The first and perhaps the most lost in the fog of recriminations is that many more workers have kept working than expected, either by working remotely or through other distancing arrangements that help to prevent the spread of Covid-19.
That is a fantastic outcome that should be welcomed even if it does cause some red faces among the bureaucrats.
More people keeping their jobs mean more tax revenue, less government spending and potentially a lower unemployment rate and faster economic recovery when Australia begins to emerge from this pandemic.
Deficits will be lower than anticipated
The second really good news about the stuff up is that it means a $60 billion reduction in the eventual federal budget numbers.
That is why Treasurer Frydenberg has wisely resisted the calls to “spend’’ the $60 billion by widening JobKeeper to include more workers in the program.
This is not a massive wad of cash that is burning a hole in the Federal Government’s back pocket – it is $60 billion this is being borrowed as foreign debt that would accrue interest from the day it is spent and will only be repaid through the taxes of future generations.
Even without the $60 billion, the federal budget deficit is likely to be a whopping one, with Deloitte Access Economics forecast of $143 billion this year and a similar number next year probably as good an estimate as any.
Taxes lower than expected
Those numbers are calculated using an $8 billion shortfall in company tax this year and an $18.3 billion in 2020-21.
Similarly, income tax on individuals is expected to come in $9 billion short of expectations this year and almost $25 billion next year.
Those numbers may be a little pessimistic given the JobKeeper news but they give you an idea of the scale of the problem on the government revenue side.
Taken together with greater spending on JobKeeper and JobSeeker payments and general spending rises to cope with COVID-19, that leaves Australia facing budget deficits as far as the eye can see.
Debts on the rise
On the foreign debt side, the $60 billion stuff up should see gross government debt pull in just a little short of $1 trillion – perhaps somewhere above the $900 billion mark – with the really good news being that very low global interest rates make this level of debt relatively cheap to service, for the time being.
However, we all know that debt is easy to get into and difficult to escape and with budget deficits likely to be protracted, it will be a long, hard task to reduce the foreign debt pile.
Of course, that debt pile will also be added to by the states, with Victoria, NSW and Queensland all likely to record deficits in the $100 billion region, again with deficits likely in future years.
Together with record household debt which is currently sitting around $3.5 trillion and the Reserve Bank already with its foot hard on the accelerator, it is easy to see why Australia is particularly susceptible to economic shocks.
Unemployment above 10% will cause lots of pain
And despite the good news on JobKeeper, it is hard to see us coming out of the other side of COVID-19 with unemployment not in double figures.
As rating agencies Fitch Ratings and S&P Global have both pointed out, Australia’s triple A credit rating is at risk and our high level of household debt is an economic and financial stability risk.
In simple terms, people who lose their jobs find it increasingly hard to pay their debts and higher debt defaults also ratchet through to reduce asset prices and depress lending and economic activity.
So, a $60 billion miscalculation is a monumental stuff up but is also great news at a time when positives have been hard to find.