The government is promising not to slash health and education budgets as it seeks to climb the mountain of debt and deficit built up as it combats the coronavirus.
Treasurer Josh Frydenberg has acknowledged Australians will be paying off the debt – set to top $850 billion as things stand – for years to come.
The budget bottom line will plunge to a $184.5 billion deficit in 2020/21.
Leading credit agencies Moody’s and Standard and Poor’s don’t expect the economic beating to jeopardise Australia’s AAA rating.
Mr Frydenberg is turning to Margaret Thatcher and Ronald Reagan for inspiration rather than looking to make the kind of deep cuts the coalition’s first budget in 2014 attempted.
“We are rejecting austerity,” he told the National Press Club on Friday.
“We are a government that will support the economy at a time that they need it, but we will also be disciplined … and we will grow that economy.
“We’ve done it before and we will do it again.”
But unlike during the global financial crisis – when the Reserve Bank’s rate-cutting spree added the equivalent of $100 billion stimulus – record-low rates mean governments have to do the heavy lifting this time.
Massive uncertainty around how effectively the virus can be controlled underpins Treasury’s predictions.
A widespread new wave of infections and a lockdown akin to that now in place in Melbourne would cost the country $2 billion a week.
The unemployment rate is set to peak at 9.25 per cent, sending a further 240,000 Australians into the dole queue by Christmas.
This will accompany low wages growth, which is expected to persist.
Wages are forecast to grow by 1.25 per cent by June 2021, the same as inflation, meaning workers won’t get any real increase to their pay.
Finance Minister Mathias Cormann said that was to be expected at a time of higher unemployment, but noted there would also be a lower rise in cost pressures.
Australian Council of Trade Unions secretary Sally McManus said sluggish wage increases were already an issue before the pandemic.
She believes the government and people with jobs should open their wallets to stimulate the economy during the downturn.
Mr Frydenberg is considering supply-side supports like tax cuts and business incentives, industrial relations reform and ways to slash red tape, such as having a national system of tradies licenses.
But he sees a vital role for stimulus measures like the two $750 payments to pensioners and other welfare recipients.
He relayed a letter from South Australian pensioner Jennie describing how in a single week the power bill arrived, her washing machine failed and her greyhound had an accident resulting in a large vet fee.
“Suddenly your money arrived and I paid my bills, perfect timing,” she wrote.
Unfortunately, it didn’t work out so well for her dog, who died.
Mr Frydenberg said the government would seek to put more money into people’s pockets and offer targeted support to hard-hit sectors.