$44m a day – and that’s just the interest

 

 

Taxpayers will be forking out over $44 million a day to cover the interest repayments alone on Australia's record debt levels, and it's only going to get worse in the coming years.

The risk over a second wave re-enforcing restrictions will hit the nation's economy to the tune of $2 billion a week, the Federal Government's economic update warned yesterday.

Australia also officially entered a technical recession, with the economy tanking a whopping 7 per cent in the June quarter, after dropping 0.3 per cent in March.

 

Treasurer Josh Frydenberg unveiling the economic update, which included the worst deficit since WWII. Picture: Gary Ramage/NCA NewsWire
Treasurer Josh Frydenberg unveiling the economic update, which included the worst deficit since WWII. Picture: Gary Ramage/NCA NewsWire

It comes as the Queensland Government handed down it's own "sobering" financial update, with the state's debt sailing above $100 billion, an $8.4 billion deficit by next July, while the state's GST take will drop $2.5 billion over two years.

But Treasurer Cameron Dick says he still hopes to have Queensland back in the black in four years' time.

While the Federal budget deficit will reach $184 billion next July, "unpopular" reforms - tougher than the franking credit "retiree tax" - will be needed to get it back to surplus within a decade, according to a Howard-era, former Treasury official.

Not all predictions are as grim, with others arguing the recovery is not baked in to the budget, meaning it could bounce back when jobs return - still years away.

Industrial relations and tax reforms are being pegged as key to growing the economy to get out of debt.

Hundreds of thousands more Australians will lose their jobs in the lead up to Christmas, with unemployment expected to peak at 9.25 per cent.

It is not expected to rebound quickly, instead hanging around 8.75 per cent by mid next year.

Gross debt at $851 billion will see debt interest repayments at $16.3 billion a year, even with record low interest rates.

The grim forecast comes with bold assumptions, including that Victoria's outbreak is contained within six weeks, future outbreaks do not slow down the relaxing of restrictions and that the international travel ban is replaced with a two-week quarantine period from January.

 

 

The downturn will drop birthrates, which coupled with plunging net overseas migration levels, will see population growth slow to just 0.6 per cent next year - the lowest rate since World War I.

Treasurer Josh Frydenberg will say at his National Press Club address today that old methods of growing the economy, like cutting interest rates and boosting migration, were not an option anymore.

"This time, while we will continue to provide fiscal support through the crisis, sustainable growth will only come from creating the most dynamic and flexible economy we possibly can," he will say.

"The initial phase of our plan was focused on preparing our health system for this crisis, saving jobs and protecting the economy. In the next phase of this crisis, our focus will shift to enabling growth."

Global Ratings agency S&P said it would retain Australia's AAA credit rating for now, but warned it could drop if the damage from the outbreak "more severe or prolonged" than expected.

Mr Dick said the state's own "sobering numbers", which includes a $5.9 billion deficit this year instead of a previously predicted $151 million surplus, could only get better by "firing up the economy" and finding "responsible savings".

"I don't like borrowing money, I wish we weren't in this position but COVID has made it that way," Mr Dick said.

State Treasurer Cameron Dick says the state’s updated financial figures are “sobering” Picture: Richard Walker
State Treasurer Cameron Dick says the state’s updated financial figures are “sobering” Picture: Richard Walker

"This is the most difficult situation our state has been in outside wartime."

Griffith University economist Tony Makin, a former Treasury economist from the Howard-era, said the $16.3 billion interest bill was high enough, but the debt itself had to be paid down at some point.

"It's OK now, but it's storing up risks of higher interest payments in the future that will be even more to pay back," he said.

Dr Makin said getting back to surplus would take "courageous" policy decisions, and milder options like reforming franking credits had already failed to get support.

"A surplus is feasible within 10 years if tough policies are implemented," he said.

Deloitte Access Economics chief economist Chris Richardson said 99 per cent of the government's $289 billion stimulus were temporary measures.

"It means when the economy is back to being OK, the budget will be back to being OK," he said.

"I won't be surprised if we can return to surplus faster than (a decade)."

Mr Richardson said putting the budget balance ahead of the economy would only hurt the recovery, saying rushing to pay off Australia's World War II debt quickly would have been ridiculous.

"This is a wartime debt, just a different sort of war. Our challenge is to get 1 million jobs back again," he said.

Originally published as $44m a day - and that's just the interest


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