The huge numbers in the updated forecasts are the government’s way of preparing voters for the policy measures to come in the October budget.

The last set of official forecasts was contained in the mid-year budget update released in December last year. That was a world away.
That document predicted a budget surplus for last financial year of $5 billion and a surplus for this year of $6.1 billion.
Thursday’s economic statement was designed as an exercise in national bill shock.
Net debt for this year was to be a trifling $350 billion and was due to be zero by the early 2030s. Gross debt was predicted to peak at about $560 billion.
At some point, the government realised that waiting 10 months between budget updates was too long, regardless of the economic volatility.
If you want the support of the electorate for economy-salvaging policy measures, it’s best you impress upon it first the size of the task and give it time to sink in.
To have dropped such huge numbers as contained in Thursday’s statement on the same day you asked punters to swallow a bunch of reform proposals would be too much at once.
On a similar but smaller scale, this happened to Tony Abbott and Joe Hockey in 2014. Due to fresh Senate elections in Western Australia caused by a vote-counting bungle, the newly elected government delayed the release of a commission of audit that was supposed to make the case for a cost-cutting budget.
The budget was going to be hard enough to sell in the first place, given it contained broken promises. It landed on a population that had not been suitably conditioned for the austerity measures within and it was the beginning of the end for both the prime minister and his treasurer.
Although the Morrison government is not planning an austerity budget in October, Thursday’s economic statement was designed as an exercise in national bill shock.
When numbers get serious
The reasons for the numbers were plain and simple. A massive and sudden decline in revenue caused by a forced closure of the economy, coupled with a tsunami of spending on income support and stimulus $164 billion in a matter of months.
“Is this the most expensive issue that we’ve ever had to manage as a country?” Scott Morrison was asked on Wednesday.
“Yes. And daylight’s second and third,” he responded.
Now that the size of the economic repair task has been outlined, here comes the hard bit. Coming up with the measures to fix it.
Upfront, the best medicine is to enable businesses to reopen. The job figures for June showed just how quickly things were rebounding under the nationally agreed strategy to reopen the economy by July while keeping the virus suppressed. The ineptitude of the Victorian government, with its quarantine and contact tracing failures, showed how quickly that can unravel.
Thursday’s numbers also showed that while business investment had slumped, mining investment was up significantly. Some things never change, even if, outwardly, relations with China are quite poisonous at the moment.
More broadly, Morrison has set a three- to five-year time frame for fixing the mess. He has said the economic reforms need to be on the scale of what Bob Hawke and Paul Keating achieved. That could include having to break election promises.
“Business as usual when it comes to the policy frameworks that we had prior to the election will need to be reconsidered on the other side, to ensure that we can achieve the growth that will be necessary for our economy to get people back into work, to get our economy back on track,” the Prime Minister said in April, quoting advice Reserve Bank of Australia governor Phil Lowe had just given to a meeting of the national cabinet.
“There was a very clear message from the advisers, particularly Dr Lowe, that if you think we can grow the economy under the old settings, then we need to think again,” Morrison said.
“We are going to have to have economic policy measures that are going to have to be very pro-growth, that are going to enable businesses to employ people, that will enable businesses to invest and businesses to move forward.”
With the October budget to be the launch pad for the economic recovery, Morrison has refused to rule anything in or out. He has described this current period as one of “harvesting” ideas.
Despite the tough talk, all indications are that the government will take the path of least resistance.
When we experienced earlier this month the now annual running up the flagpole of proposals to increase the GST to fund other tax cuts and boost productivity, the government did not entirely rule it out.
Aiming for the achievable
In the spirit of never say never, it has left the door ever so slightly open, but the desire to go through is very thin, given the toxic politics of increasing the price of everything when people are broke, not to mention the size of the compo bill with so many on welfare.
Morrison’s plan for a business-led recovery is focused on industrial relations, tax, deregulation, skills and energy, all aimed at the achievable.
He has already flagged between now and October speeches on manufacturing and energy. Expect a move to lock in cheap gas for industry on the east coast, and to use government procurement powers to secure the domestic manufacturing of essential products.
Rather than resume battle on cutting company tax, an investment allowance which offers tax write-offs for investment is on the cards for the budget. Labor proposed such a policy at the last election, so there should not be any resistance.
On IR, Morrison has initiated talks with the unions and business on five areas where there’s is a reasonable chance of agreement, such as the need to reform enterprise bargaining.
The fact no one has walked away so far is a positive sign.
The strategy thus far may not be valiant in the mould of Hawke-Keating but it does avoid mindless stand-offs with the Senate, and it means getting stuff done. And that’s what matters.