How COVID-19 stimulus packages are affecting the Australian economy

By Dale Gillham. Published at Jul 24, 2020, in Features

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

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