Once the coronavirus disaster ends or wanes, Australia will face difficult economic times for many years because of its growing debt, a reality that will demand greater policy innovation.
With recent government spending exploding in response to the coronavirus to assist the unemployed and businesses, it is estimated that Australia's net public debt will rise to around 26% of gross domestic product (GDP) by 30 June 2020 after being around 19.5% at the end of 2019. Who knows how large the public debt will be by the end of 2020-21.
While the current use of quantitative easing around the world is intended to “keep bond yields perpetually low”, thus adding to global total debt (private and public) which reached 322% of total economic output in the third quarter of 2019 ($US253 trillion), it would be nonsense for Australia to endlessly print more money to produce goods and services to aid the recovery.
Already, S&P Global Ratings has downgraded Australia’s outlook from stable to negative in response to the Morrison government’s massive financial stimulus package.
But, Australia needs to do more to diversify its economy.
For a start, we should no longer rely on authoritarian China to the same extent for our economic salvation.
Hence, I question the view that Australia should expand its economic relationship with China to counter rising anti-globalisation protectionism where the US is “pushing hard with rhetoric geared towards the economic decoupling of the US from China”.
I also reject the plea from the same authors that the government should “rethink our foreign investment rules as they apply to mainland China” to “look rationally at the new opportunities” to cooperate with Beijing on new technologies and research and development.
While the ANU’s Allan Gyngell urges Australia to “engage effectively in direct high-level discussions with both Beijing and Washington, or risk being crippled in its recovery”, the US will rightfully expect Australia to support the promotion of liberalism in political and economic terms, even if this offends authoritarian China.
As noted by Grant Newsham, a former US diplomat and research fellow at the Japan Forum for Strategic Studies, Australia will continue to enjoy US support as long as the vast majority of Australian politicians and people take the Chinese threat seriously and do not succumb to merely taking Chinese money.
As for Australia’s economic plight, problems were evident before the coronavirus given that economic growth had slowed to under 2% in the first three quarters of 2019 before finishing the year at 2.2%. Only strong population growth has masked Australia’s very low per capita economic growth rates with the ten year period from 2009 to 2018 exceeding 2% only once.
In fact, talk of the Australian government selling bonds was evident during October 2019 when Goldman Sachs noted that the Reserve Banks of Australia (RBA) could resort to $200 billion bond-buying scheme if rate cuts (then 0.75%) did not lift stimulate economic growth and increase inflation to the 2-3% range.
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