This Massive Debt Is With Us Till 2080

Written by:
9 October 2020
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Originally Appeared In

“Insouciance” is a word Australians don’t use very often. Maybe we should.

It perfectly describes the popular reaction to this week’s federal budget and the news the country faces more than a trillion dollars of government debt.

Australians are also insouciant about the jobs of a quarter of the nation’s workforce now being dependent on wage subsidies from the government.

And the Coalition seems insouciant about the political consequences of government spending going from $549 billion and 28 per cent of GDP in 2019-20 to an estimated $677 billion and 39 per cent of GDP in 2020-21.

To be insouciant is, according to various definitions, to be “apathetic”, “carefree”, “unconcerned”, and “with no feelings of worry or guilt”. That’s been the prevailing attitude to the national economy for the past decade, and it looks set to continue. It’s an attitude that’s the product of 29 years without a recession.

To take the last point first, eventually it’s going to dawn on the Labor Party, as it already has on the Democrats in the United States, that such massive increases in government spending can pave the way for the introduction of a universal basic income (basically a non-means-tested guaranteed government welfare payment for every adult). A universal basic income is already advocated by the Australian Greens.

Leaving aside the philosophical arguments against the concept, the biggest hurdle to its implementation is what it costs – if it were paid at the rate of the minimum wage, it would cost at least an additional $100 billion a year in government spending.

Before March, that was an astronomical sum. Now, not so much. A universal basic income is a lot closer to reality than it was six months ago.

With the Coalition for all intents and purposes guaranteeing the government would pay at least part of the wages of workers who would otherwise have been unemployed because of COVID-19, it’s now not that big a step for Labor to guarantee a “wage” to everyone, whether in work or not – which is the “income” part of the universal basic income. (The genius of the left is in describing a welfare payment not as “welfare” but as “basic income”.)

Basic income plan could change the debate

As soon as the ALP declares itself for a universal basic income, all the contours of the country’s political debate will change. Labor will be seen to have a plan, and it will take the policy initiative.

Meanwhile the Coalition will be left attempting to explain why, if it’s already willing to increase government debt by hundreds of billions, it doesn’t want to borrow just a little bit more to provide an adequate standard of living to the hundreds of thousands of Australians, especially young Australians, whose job prospects and futures have been blighted by the pandemic.

Analysis by the Institute of Public Affairs following the release of the budget reveals that even on the most optimistic assumptions, the federal government will not pay off its debt until the 2080s – even if future governments wanted to.

While interest rates are less than 1 per cent, it’s easy to be insouciant about the consequences of gross debt at more than 50 per cent of GDP. To expect interests will stay at their current level for the next 40 years is as heroic an assumption as that made by Treasury when, in preparing this year’s budget, it assumed “a population-wide Australian COVID-19 vaccination program [would be] fully in place by late 2021”.

To all of this the Prime Minister and Coalition ministers respond, not completely unreasonably, “What’s the alternative?”

Many of the government’s fiscal measures are appropriate and are necessary to maintain the country’s social and economic fabric – especially in the face of mismanagement and parochialism on the part of state governments.

An additional $100 billion of government spending could have bought a lot of reform.

Income tax scales could have been properly flattened, social security could have been redesigned to focus on getting people into work, and state governments could have been given the fiscal incentives to cut their red tape.

The problem with the 2020-21 federal budget is not even so much what’s in it. It’s what’s not in it that’s the problem.

It remains to be seen for how long Australians will be insouciant about their country’s economic condition.

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