The federal government’s massive debt due to pandemic emergency spending could double over the next few decades as borrowing costs rise and spending costs soar.
- Stephen Anthony warns debt bill could double to $1.7 trillion by 2032-33 to fund major spending
- But the treasurer maintains that the debt is manageable
- Mr Anthony says major reform will be needed to avert a possible debt crisis
Former Treasury economist Stephen Anthony predicts net debt could soar from the current $750 billion to $1.7 trillion by 2032-33 as future budgets are weighed down by defense spending commitments, the National Disability Insurance Scheme (NDIS), aged care and unfunded public sector pensions. Passives.
Now chief economist at Macroeconomics Advisory, Mr Anthony said pre-election “cash splash” spending in next week’s federal budget risks shifting to fiscal austerity in years to come without restraint or reform.
“All of this spending combined requires significant structural reform. None of this is really factored into the budget we’re looking at.”
“So we have a set of very serious problems that the government elected in May will have to deal with.”
Significant reform needed to dodge sharp spending cuts
With less than a week to go before the federal budget, Treasurer Josh Frydenberg maintains that the debt, now expected to peak at less than $1 trillion, is manageable.
But Mr Anthony warned that soaring inflation around the world, particularly in the United States, will eventually push up global interest rates and put pressure on the Commonwealth’s currently near-zero borrowing costs. .
“Therefore, we should see the weighted average cost of borrowing for the Commonwealth of Australia over the next five or six years increase by at least that, and this big structural deficit that underpins our budget will further exacerbate tensions. that we face.”
Mr Anthony said whoever wins the May election, significant reform will be needed to avoid sharp spending cuts to curb a potential debt crisis.
“Plausible” price hike
Global bond yields have risen this year as inflation has become more entrenched rather than transitory.
Major central banks, including the US Federal Reserve, have begun tightening cycles, with Chairman Jerome Powell signaling up to six rate hikes this year to keep inflation under control.
Reserve Bank of Australia Governor Philip Lowe maintains a rate hike this year is ‘plausible’ while pledging to be patient until the official unemployment rate falls below 4 % and so far the elusive wage growth is materializing.
The federal government’s debt bill was fueled by $314 billion in pandemic emergency spending, such as JobKeeper, as the national economy was forcibly shut down during the pandemic.