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 Another first as Australia leads with Covid debt!

08.04.21.  Time will tell if the dubious mantle of running up the highest Covid debt works out for the better in the wash-up. As Adam Creighton runs the figures it appears that our government financial support during COVID-19 pandemic is the main cause of massive debt. What was saved by those measures might turn out to be the right policy.
Australia’s public debt is on track to rise by more than any other developed nation over the three years to 2022, according to the International Monetary Fund’s latest global debt outlook that weighs the impact of a combined US$16 trillion ($20.9 trillion) in pandemic budget support.

Source: Adam Creighton, News Corp

Australia leads world with $590bn Covid debt spike

Australia’s combined state and federal government debts are expected to rise from the equivalent of 47.5 per cent of GDP in 2019 to 77 per cent of GDP in 2022, a bigger increase as a share of national output than any of the 35 major developed nations the IMF tracks.
For Australia, with an annual GDP of about $2 trillion, a 29.5 per cent rise equates to about $590 billion.
“Average public debt worldwide reached an unprecedented 97 per cent of GDP in 2020 and is projected to stabilise at around 99 per cent of GDP in 2021,” the IMF said in its latest Fiscal Monitor, calling on governments to consider increased wealth, property and make income tax more progressive to stabilise budgets into the future.
“COVID-19 recovery contributions and ‘excess’ corporate profits taxes could be considered,” it added, in comments echoing calls by US Treasury Secretary Janet Yellen for a global minimum corporate tax rate.
The number of advanced nations with a lower public debt burden than Australia is forecast to rise from 13 in 2019 to 18 in 2022, leaving it behind Scandinavian nations, Ireland, and Germany, for example.
The latest Fiscal Monitor, released at 8am Wednesday Washington DC time, found public debt rose the least over the three-year period in Norway (up 1 percentage point) Switzerland (4) and Sweden (5), and the most, apart from Australia, in the US (24) and Canada (26).
IMF fiscal affairs department head Vitor Gaspar said the increased debt among advanced nations was “much larger than the historical norm for business cycle fluctuations [but] appropriate because COVID-19 is a health emergency”.
While increases in debt were largest in advanced nations, the IMF warned the impact of the pandemic would fall disproportionately on poor nations, exacerbating global inequality. It estimated 95 million extra people in poor countries fell into extreme poverty last year.
“Vaccine access is also deeply iniquitous with high-income countries, with 16 per cent of the world’s population, having pre-purchased 50 per cent of the doses,” the IMF said this week in its World Economic Outlook.
Total per person income losses during the pandemic, compared with what was expected before the crisis, were almost twice as large, at 20 per cent, in poorer countries than they were in rich countries.
“Once the health crisis is over, policy efforts can focus more on building resilient, inclusive, and greener economies, both to bolster the recovery and to raise potential output,” said IMF chief economist Gita Gopinath.
The IMF, which dubbed 2020 “the Great Lockdown”, said global carbon dioxide emissions fell 4 per cent in 2020 because of the economic contraction and they would need to fall by the same proportion every year for the next 30 years to lower global emissions 80 per cent by 2050.
“Without immediate and co-ordinated global policy action, emissions will rise again as the pandemic passes and output rises, and countries with the least capacity to absorb the costs of adaptation — small states and low-income countries — will suffer most,” Ms Gopinath said.
“Because the crisis has accelerated the transformative forces of digitalisation and automation, many of the jobs lost are unlikely to return, requiring worker reallocation across sectors — which itself often comes with severe earnings penalties,” she added.
The IMF lauded governments’ response to the coronavirus, suggesting the economic collapse would have been “about three times as large had it not been for the swift policy support worldwide”. “The COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis,” it said.

{ 5 comments… add one }
  • Cliff 08/04/2021, 6:15 am

    And yet we read elsewhere that the Australian economy is booming. When I heard that ‘news’, the wife and I were both bemused and wondered, almost in chorus, how much of this economic boom was fuelled by the massive government handouts to damn bear everyone to cover the COVID shutdowns.

    How DO you have an economic boom when 70% or more of the population are forced to stay at home for much of the year? And who is going to repay the massive loans the government has had to take out to give Australians all that assistance to stay at home and not work, to the point where we have had to import workers in the middle of these lockdowns to pick fruit? (Question: did any of those overseas workers ever arrive, or did the unpicked fruit rot in the trees while tens of thousands of Australians picked by their Jobkeeper allowance?)

  • Ian 08/04/2021, 6:55 am

    In 2022 we will have a GDP of approximately $2T and a combined state and federal debt of 77% of this. That would mean that we owe $1.54 trillion.

    Let me just do the most basic of sums for you. At an interest rate of say 1%, we have to pay back, (each year before paying down any capital), $15.4B. That might not seem like much until you then consider that the interest could have built around 15 world class children’s hospitals, that’s around two per state, each year.

    Or it could have built the inland high speed rail from Melbourne to Brisbane, (fully funded in one year).

    Or it could have bought us a Nimitz class aircraft carrier and air fleet, again fully funded in one year.

    Or lets say we do something really sensible, we could have built power stations and developed the coal and oil industry into government hands providing energy and profits, (think Norway).

    Or in crude terms, every man woman and child in Australia has to earn through foreign trade and gift to an overseas agent just over $6,000 each year for the interest bill alone. If the interest rates go up, or the $Aus falls, then the bill goes up and up and up.

    The debt…. Well that’s simple, we just have to earn, (again through foreign trade), and hand over nearly $61,000. To give you an idea of that, coal is a good earner, at $100/T. Can you and every other man woman and child in Australia, dig, crush and transport to a port over 600 tonnes. That is the size of our national debt. Note, we would have to find the coal reserve too, since the current ones are owned by often foreign interests so you can’t just take the stuff already under licence.

    The governments of this land should be embarrassed. How do they propose that we repay that debt AND when? Or should I ask, where is my shovel?

  • Botswana+O'Hooligan 08/04/2021, 7:32 am

    The answer is simple, they will tax the bejesus out of everyone on everything and probably opine that a Labor government would have been worse, and it might very well have been but Labor would have had to hire extra manpower to throw the money around.

    • Lorraine 08/04/2021, 9:59 am

      you think Labor would have thrown the money far and wide….I think much would have gone to buy voters ,Victoria Queensland and WA showed the way. Daniel Andrews himself has more people around his department than our PM has in the Federal sphere……….Yes a Labor Government would have been worse as they would never have given job keeper and job seeker monies to Employers, in fact it would not have entered their brains to do either

  • Penguinite 08/04/2021, 9:22 am

    China’s indebtedness is 350% of GDP and The USA won’t be far behind, by the time Biden’s trillions hit the market. Governments, not even Liberal ones, no longer care about debt. Staying in power and control is the Gig! They just print money and don’t concern themselves with the burden of balanced budgets!

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