How COVID-19 stimulus packages are affecting the Australian economy
Many Australian’s are currently enjoying the benefits of the Governments COVID-19 stimulus measures, although there are just as many worrying about the debt we are creating as a nation and how we will survive this.
On Thursday, Treasurer Josh Frydenberg revealed that Australia’s budget would blow out to $184.5 billion over the next year, making it the biggest deficit we have experienced since World War II and putting Australia further into debt. While increasing our national debt should be concerning to all Australians, we also need to look at the bigger picture and put what is now happening into context.
In 2019, Australia’s debt to GDP was 41.80 percent and after Thursday’s announcement this will rise even further. By how much is uncertain right now, although expectations are that it will not be an alarming increase. In comparison, if we look at US debt, we see that the debt to GDP is currently sitting at a massive 132.57 percent. To see the US debt to GDP level like Australia is currently experiencing, you have to go back 60 years to the 1960s when the US debt to GDP ratio was 52.65 percent.
Much of the growth in debt in Australia has occurred over the last decade because in 2000, at the height of the GFC bull run, the debt to GDP level was just 9.7 percent. When you compare that to today's level, you can start to understand why so many Australians are currently concerned. Stimulus packages during the GFC also saw debt levels in the US increase significantly but unlike the US, Australia has done an excellent job over the past four years in curbing its debt to GDP level, as it has been in the low 40 percent range since 2016 and, until COVID-19, was set to fall away.
So, should we be concerned?
Like so many others, I am concerned but I am not alarmed by our debt levels for two reasons. The first is that a nation’s debt is very different to household debt, because unlike individuals who have set periods as to when the debt must be repaid, the nation's debt has no set time limits. Secondly, our debt to GDP level is currently quite acceptable and, as a nation, we are much better placed than most other countries to not only handle this increased debt but also thrive over the next few years.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au
Short-term positions in small, early stage ASX companies,
with high potential and near term price catalysts.
Focusing on resource exploration, early-stage tech, and biotech.
Exceptional opportunities across a broad range of
early-stage growth sectors with strong management.
Seeking 1,000% plus returns across medium to long-term holds.
Longer-term positions in a variety of sectors.
Seeking strong management where traction is established and have entered into a growth phase.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.