Some forecasts of the unemployment rate have reached as high as 15.1 per cent – but getting this figure down to pre-coronavirus level won’t be in reach for another four years, a Deloitte economist has said.
According to Deloitte Access Economics partner Chris Richardson, Australia will have to “champion a new round of much-needed economic reforms” if it is to address the major shortfall in national income even after the virus crisis is over.
Deloitte estimates the federal government’s budget deficit will hit $143.1 billion in the 2019-20 financial year, well undercutting the government’s own forecast of a $5 billion surplus from its December mid-year review.
But fixing the budget won’t lie in raising taxes: it will be on boosting the economy.
“Our defence against the coronavirus has been world-leading. But just beating back the virus isn’t enough,” Richardson said.
Prime Minister Scott Morrison recently said that flattening the unemployment curve would be Australia’s next priority.
The jobless rate is expected to hit 10 per cent or even higher under forecasts by both the Grattan Institute and the governor of the Reserve Bank.
But unemployment goes down much faster than it comes back up, Richardson pointed out.
“The ‘mission accomplished’ signs can’t be put up until unemployment is back at 5%. On our forecasts, that doesn’t happen until late 2024.
“We’re years away from returning unemployment to the 5 per cent rate it was at when this crisis hit.”
How to fix the budget: get jobs back
Australia’s federal budget won’t be ‘back in the black’ for years to come: even in the 2022-23 financial year, we can expect a federal budget deficit of $32.6 billion, Deloitte estimates.
“The budget won’t have returned to surplus in those years, but that’s only because the economy will still be suffering a hangover from the traumas of the moment.”
But the budget will only be “badly bent” and “not broken,” said Richardson.
“Today’s emergency policy measures are temporary. When they’re gone, the budget will still be running big deficits: but that will be because the economy is still weak. If our economy gets better, the budget will too,” he said.
The responsibility will fall again on state and federal governments to drive up jobs. “That may, for example, mean we need scaled down wage subsidies for a time in the hardest hit small businesses.”
Job-generating areas such as infrastructure will need to be kick-started, he said, and increasing taxes or budget cost-cutting would not be the solution.
“Rapid budget repair would be misguided: the budgetary damage isn’t structural, but the damage to our economy and our jobs would be if we start raising taxes and cutting spending.”
Keeping borders closed and cutting off immigration wouldn’t help in bringing the unemployment rate faster, either.
“Getting young, skilled migrants is a smart play for us. But what we haven’t done over the past two decades is match our fast population growth with a matching strong infrastructure spend.
“That’s led to pressures on transport, health and education systems in the outer suburbs of our biggest cities,” said Richardson.
Speaking on ABC’s RadioNational this morning, Richardson added that some productivity reforms such as “tidy[ing] up” legislation where state and federal governments “over decades … increasingly tripped over” should be considered.
“[State and federal governments] should swap a series of responsibilities to tidy up those lines to get a much better working federation,” he said.
“If you had one layer of government with responsibility for one key area in Australia, that’s a much better way to do it.”
A range of tax reforms should also be considered, he added.
“I think there’s a case for a big red button getting installed in legislation that is an emergency override of some of the things that we’ve had to run around and clear the way of this time.”