Treasurer Josh Frydenberg delivered a strong speech tonight in handing down what I’d label as his won’t-die-wondering budget, or possibly as the Nixon-goes-to-China budget, a federal budget with an expected current financial year deficit of $214 billion and projected total debt of over $1 trillion. Josh Frydenberg and his Morrison Government colleagues have decided they aren’t going to die wondering whether they could have done more to bolster the economy and protect jobs in this time of crisis.

The scale and breadth of new spending and tax measures the Morrison Government has adopted in response to the COVID-19 crisis are extraordinary. The substantial temporary expansion of the instant asset write off, which we learned about tonight, will hopefully stimulate some much needed additional business investment, although how much remains to be seen. Even with the additional incentive, many businesses are probably reluctant to invest given the uncertain economic outlook. JobMaker is another program that may not live up to expectations for the same reason. I also suspect that JobMaker may end up subsidising the wages of apprentices and trainees who would have been taken on anyway, and hence its “additionality”, to use the jargon, would be small.   

I’d also label the federal budget as the Nixon-goes-to-China budget, because it’s possibly only a conservative government that could get away with massive fiscal measures and huge deficits of this magnitude – without being pilloried by the media and the Opposition, which to its credit has been reasonably supportive of the government’s policy measures. In contrast, I recall how the Opposition at the time of the GFC heavily criticised the Rudd Government’s Nation Building and Jobs Plan and then Opposition Leader Malcolm Turnbull attempted to block the lifting of the debt ceiling to
$200 billion. That was eleven-and-a-half years ago. Now Australian Government debt will soar past $1 trillion, as the Government and I expect its Treasury officials look at government borrowing rates of less than 1% p.a. for ten years and say “whatever”. There may be a risk of refinancing a massive amount of debt at higher interest rates one day, but that will be a new government many years in the future, they must be thinking.

Finally, full credit to the Government and its Treasury for producing a full budget with four years of forward estimates despite all the economic uncertainty, including over the availability of a vaccine, which is expected to be rolled out across Australia by late 2021. If there’s no vaccine, then the economy could be worse, the deficits larger, and the debt higher than expected in the budget. There is a lot of guesswork in the budget, but at least we now have some idea of the economic and fiscal outlook.

Alas, unlike the Australian Government, the Queensland Government has not provided budget forward estimates out to 2023-24. The election campaign officially started today, but we don’t have a state budget which would help us get a sense of whether policy announcements by both the Government and Opposition are affordable over the long-term. Regular readers will know Joe Branigan and I attempted to produce some Queensland budget forward estimates in a recent report commissioned by the Australian Institute for Progress, and I’m glad the Financial Review’s Mark Ludlow has covered the report in a new article: Economists warn of $118b Qld debt bomb.