Virus Fights Blights Fiscal Future

Written by:
2 July 2021
Virus Fights Blights Fiscal Future - Featured image
Originally Appeared In

There’s a neat symmetry between the release this week of the 2021 Intergenerational Report from the Commonwealth Treasury department and the shambles Australia’s response to the coronavirus has become over the last few days (although some would say the country’s management of the virus has been shambolic, totalitarian, utterly inhumane, and lacking in any accountability or transparency since almost the beginning of the pandemic).

Peter Costello’s idea when he was treasurer of producing a document projecting a possible future for the country over the next forty years was a good one and the first few editions of the report were useful.

But as with all such exercises, everything depends on the assumptions that are made, and the truth is the only numbers that can be taken seriously in this year’s report appear on page 76 in “Chart 6.7: Net [federal government] debt”. It’s a picture that should be seared into the brain of every politician in the country, but won’t be.

Along the horizontal axis are the years 2000-01 through to 2060-61 and on the vertical axis is “per cent of GDP” and there’s a blue line tracing the change in net debt over that time. Starting in 2000-01 the blue line starts at approximately 7 per cent and dips to below zero in 2006-07 before starting turning and taking a 45 degree trajectory up to 41 per cent in 2024-25.

From then the blue lines stretches out for the next 35 years at between 30 per cent and 40 per cent.Advertisement

In words this means the country has gone from having net zero debt under Howard and Costello to now a condition of being in debt forever. The best the report says about this is Australia “currently has a lower debt burden than a majority of comparable countries”.

That’s a true but quite meaningless statement. It’s like saying Australia’s unemployment rate during the Great Depression was not as high as Germany’s.

The report’s conclusion about the country’s permanent debt is credible because it’s based on evidence. What’s not credible are most of the report’s assumptions about future growth rates. It’s assumed for example that labour productivity growth will increase to 1.5 per cent per year, which is “consistent with the average growth rate in labour productivity over the 30 years to 2018-19”.

But if you go back and add another decade that long-term average falls to below 1 per cent – and Australia in the 2020s looks a lot more like it did in the 1970s (not in a good way) than it did in the 1980s.

The onset of the coronavirus is indeed a “once in a century crisis”, as the World Health Organisation has declared. But it’s been a government-created crisis, and governments around the world, with Australia’s governments being no exception, have created (and manipulated) a sense of crisis.

There’s no indication the country’s political class will manage Australia’s next crisis, in whatever form in might take, any better than they’ve managed the coronavirus.

The widespread outrage from politicians and the media following the remark of Dr Jeanette Young, the Queensland chief health officer that “we’ve had very few deaths due to COVID-19 in Australia in people under the age of 50” is surely partly motivated by the fact that Young’s statement was true, but it is entirely the opposite of the narrative politicians and nearly all of the media have been perpetuating for nearly eighteen months.

One of the major differences between the 1980s and today is that back then politicians were more likely to be honest with the public and so there was a greater level of trust between rulers and the ruled. Governments’ response to the coronavirus has eroded that trust.

There’s scant evidence Australia’s political class has any interest in undertaking the kind of policy reform that will return Australia to the growth of the 1980s and early 1990s. That period should be seen as an exception to the nation’s history, not the rule.

The current bickering and the backbiting between the prime minister and premiers, and between the premiers themselves, is a more credible picture of the behaviour of our leaders in the years to come than what occurred in the dim and distant past of three decades ago.

Support the IPA

If you liked what you read, consider supporting the IPA. We are entirely funded by individual supporters like you. You can become an IPA member and/or make a tax-deductible donation.