Treasurer Josh Frydenberg and Finance Minister Mattias Cormann have said Australia is in an excellent financial position to weather the COVID-19 debt crisis despite the federal government creating record levels of debt to help the country get through the economic crisis caused by the CCP virus.
Speaking at a joint press conference in Canberra on July 23, Frydenberg noted that the world is currently experiencing “the most severe economic crisis since the Great Depression.”
“In the past 40 years, the global economy has only contracted once,” the treasurer noted, by 0.1 percent in the Global Financial Crisis.
This year the OECD estimated that the global economy would contract by 6 percent, and the IMF estimated that 157 economies would shrink substantially this year.
To support Australia Frydenberg said the Morrison government has had to deploy $289 billion or 14.6 percent of GDP to sustain our economy.
However, as there has also been a significant drop in tax revenues, Frydenberg said that the current level of government economic support has meant Australia has had to go into deficit by borrowing heavily.
This the treasurer noted has meant Australia has an expected $85.8 billion deficit in 2019-20 and a $184.5 billion deficit in 2020-21.
“These harsh numbers reflect the harsh reality we face. The economic outlook remains very uncertain,” said Frydenberg.
Australia Doing Better Than the Rest of the World
Frydenberg noted that Australia had gone into this crisis with a balanced budget, putting the country in a better position than the rest of the world.
“We have been singled out by the IMF to be the only developed economy to have their economic outlook upgraded this calendar year,” the treasurer noted.
“Our fiscal support is targeted, timely, and temporary to ensure that it does not undermine the structural integrity of the budget with all three major credit rating agencies having now reaffirmed Australia’s AAA credit rating during the pandemic,” he wrote in a joint media release with Cormann on July 23.
Current estimates by Treasury put Australia’s net debt at $488.2 billion (24.6 percent of GDP) by June 30, 2020, and it is expected to grow to $677.1 billion (35.7 percent of GDP) by June 30, 2021.
Frydenberg noted, however, that because of the historically low rates of interest, the Australian government can manage these levels of debt.
Treasury estimated the interest bill on this debt would be $16.3 billion a year.
Minister for Finance Mathias Cormann agreed with Frydenberg noting that while Australia currently finds itself in a challenging position, “We are in a better, stronger more resilient position than most other countries around the world.”
Explaining that our debt was much less than other countries before the COVID-19 economic crisis occurred, Cormann said the government plans to grow the economy as a pathway to resolve this debt.
“The way to get on top of this debt is by growing the economy more strongly and creating more opportunity for Australians to get ahead; to get into better-paying jobs and get ahead,” said Cormann.
Phillip Lowe, the governor of the Reserve Bank of Australia, has said that the Australian government is in an excellent position to support economic recovery in the long-term.
He described it as a “change that is entirely manageable and affordable, and it’s the right thing to do.”