Debt, deficit and gray hair: COVID-19 upsets the economic future

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“It’s a projection of what could be, not what will be,” he should say.

“But once our economic recovery is secure, we have a responsibility to do the work again to restore our finances and rebuild our fiscal buffers.”

In 2015, the government expected to have negative net debt. Mr Frydenberg’s report shows net debt at just under 30% in the mid-2040s before rising again.

Mr Frydenberg will argue that one area of ​​change could relate to migration, which has collapsed due to COVID-19 restrictions. After 194,400 net migrants entered the country in 2019-2020, 77,400 net migrants are expected to leave in 2021-2022.

“A well-targeted and skills-based migration program can supplement our stock of working age people,
slow down the transition to an older population and improve Australia’s economic and fiscal prospects, ”he said.

The treasurer will also argue that productivity growth will need to increase.

But the report is based on an assumption that Australia’s average productivity growth rate over the past 30 years of 1.5 percent will be replicated over the next four decades.

Mr. Frydenberg selling this year’s budget. Its intergenerational report shows that the budget will not return to surplus for at least 40 years.Credit:Jessica Hromás

Productivity has slowed over the past 15 years, falling below 1.5% during this period. Since the 2015 intergenerational report, it has averaged 0.5%.

The government has self-imposed a 23.9 percent GDP tax limit. The report shows that the pandemic has hit total tax revenue, with the 23.9% limit not being reached until 2035-2036, four years later than expected in 2015.

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The Treasury warns that personal tax revenues will grow faster than others, such as corporate taxes, until the mid-2030s.

“Without raising additional revenue from existing taxes or imposing taxes on new sources, individuals
tax revenues will represent a greater proportion of total tax revenues in the long run due to
media creep, ”he said.

“Corporate tax revenues are likely to continue to be volatile, while indirect and consumption-based tax revenues will form a smaller proportion of total tax revenues than in the past.”

The report takes into account the federal government’s third-stage tax cuts that were in part put in place to deal with the drifting brackets, suggesting that the Treasury believes more tax changes will be needed.

The combination of slower population growth, changes in labor force participation and productivity means that the economy is expected to grow by 2.6% per year over the next four decades. Over the past 40 years, the economy has grown at an average of 3% per year.

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