The 2020 Federal Budget Will Drag the Horses to Water, but Will They Drink?
Dr Marcus Smith
On Tuesday this week the Federal Treasurer, Josh Frydenberg delivered his second budget as the nation continues to navigate the COVID-19 crisis while traipsing through its greatest recession since the Second World War.
Yet, while the Government are indeed ‘throwing the kitchen sink’ at the COVID-19 crisis to stimulate the Australian economy, the idiom comes to mind that “you can take a horse to water, but you can’t make it drink”.
The success of this recovery plan will be invariably determined by the extent to which businesses will be confident to access the support provisions and invest in new plant and machinery as well as hire new staff in a time of such uncertainty.
Leading Queensland economist, Gene Tunney from Adept Economics also provided commentary on this issue in his initial response to the Federal Budget published on the Queensland Economy Watch blog:
“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.”
Indeed, the Government has made some rather optimistic assumptions on a sharp recovery to economic growth across the budget forecasts, which is largely dependent on a vaccine being found, the reopening of state borders, and unemployment falling to pre-COVID levels below 6% over the estimates.
While the deterioration in the Commonwealth Treasury bottom line has meant that gross debt over the estimates is forecast to balloon to over $1.1 billion in 2023-24, the Treasurer has rested his laurels on the two impulses of increasing debt and falling interest rates having implied negligible effect on interest costs as governments increase borrowing for the moment.
Nevertheless, the level of national and state debt and whether these levels are sustainable is an issue that will need to be addressed at some time in the future, particularly when faced with a future global financial and or economic crisis.