Perspective is key through the COVID-19 crisis, and although Victoria and New South Wales are battling to contain a second wave of the virus, we can’t lose sight of the fact that Australia still has some of the lowest rates of death and infection in the world. Our economy is also proving more resilient than those of our peers, and, barring a significant deterioration, should return to growth in the September quarter of 2020.
Local workers have been spared the worst of the fallout, with Australia’s unemployment rate of around 7.5% comparing well with the situation in the US, where more than 11% of the labour market are looking for work. Locally, unemployment is still at its worst level since the Great Depression, but the situation would certainly be more dire were it not for the impact of the JobSeeker and JobKeeper programs.
The success of Australia’s stimulus package can be attributed to the way in which it was primarily funnelled through to direct payments for businesses and households. Overseas, stimulus packages have tended to rely more heavily on loans and grants, and those who are eligible often don’t apply. Here, stimulus payments have landed quickly and directly in bank accounts and that money has been more effective in supporting businesses and shoring up consumer demand through the pandemic.
The extension of both programs by the Federal Government, announced well ahead of their September expiry dates, is a welcome move and we’re confident that a further extension will be granted if and where necessary before the new deadline in March.
The trade-off to the budget’s bottom line, deficits in the order of $85.8 billion for FY2020 and $184.5 billion in FY20211, will be eye-watering but not insurmountable, if history is anything to go by. Previous deficits of this magnitude were used to finance the country’s war efforts in 1914-18 and 1939-45, and there are strong parallels, at least from a fiscal perspective, with the current crisis. Those deficits were effectively erased by rising post-war inflation, and when we eventually do climb out of our current low-rate environment it should become clear that the magnitude of the task in front of us will diminish significantly.
Australia’s debt burden by international standards remains low, with our net public debt of 40% of GDP paling in comparison to countries like the US (more than 100%) and Japan (more than 160%).
There is an emotive argument to be made that younger generations will bear the brunt of repayments, but it is worth remembering that it is precisely these workers who are worst affected by the downturn, and for most the prospect of keeping their jobs will be worth the cost.
For more on this, you can watch the webinar with Diana Mousina:
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