Huge debt set to stay
Economists do not expect the federal government to clear the debt run up dealing with the COVID-19 recession anytime soon.
Gross debt is already at a record $866 billion and should pass $1 trillion within two years.
In a budget update on March 29, Treasurer Josh Frydenberg is expected to confirm on the budget will remain in the red over the coming four years .
Net debt has escalated from minus $11.3 billion in 2008-09, and should reach $914.8 billion in 2024-25.
While the current debt is at record levels, KPMG senior economist Sarah Hunter says it is the sustainability of the position that is important.
“Net debt is unlikely to decline significantly over the forecast horizon, given that structurally the government is set to run a deficit from now onwards,” she told reporters this week.
“The sustainability of the government’s debt position is what really matters, rather than a need to drive net debt back to zero. And even with the significant increase in gross and net debt over the last two years, given the current trajectory for interest rates the government should not have any issues with sustainability.”
Independent economist Stephen Koukoulas says getting back to zero net debt should not even be put forth as a policy aim.
“As the economy enters a period of solid growth with a lift in inflation and wages, at the very least the automatic stabilisers should be allowed to repair the budget,” he said.
EY chief economist Jo Masters says more productivity may enable the government to pay down the debt.
“[There’s] a large pile of debt to address – it’s arguably debt that we had to have, but you can think of it as borrowing growth from the future. The least costly way to address the debt burden is to grow the economy, otherwise you are left with cutting government services or raising taxes,” she said.
“To tackle nearly $1 trillion of debt over any meaningful time horizon requires productivity-enhancing reform to raise the speed limit of the economy so that we can push growth higher without hitting capacity constraints.”