Can Australia Afford the Stimulus Packages?

April 28, 2020
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So, can Australia afford the $214 billion in stimulus money being spent on the economy?

Hello dear readers,

Firstly, I would like to say a big thank you and hello to all of my new readers. I cannot believe the growth I am seeing and thank you to all of you who have started to check out my new YouTube channel.

So, can Australia afford the $214 billion in stimulus money that is being spent on the economy? Oh my, yes, not only can we afford it, but we can go quite a lot higher if needed. As always, we are seeing a lot of sensationalism and fear mongering in the media: "debt forever," "how will Australia survive?" This is just not the case. What you need to understand is that Australia has an incredibly robust economy, our Gross Domestic Product (GDP) is $1.9 trillion per annum (this is how much our country makes per year).

Also, if you look at our country’s debt, we are at around 18% of our GDP. This really is not a lot. To give you some context, our big sister country, America, has its debt at 100% of its GDP and Japan, a former economic powerhouse, is at 150% of its GDP. Australia is actually sitting at historically low debt. Do you remember all of those surpluses we had that the government was talking about? They used the extra money to pay down our global debt. To give you some greater context, if our government spent an additional $736 billion to bolster the economy and pay more money to those Australians who cannot work, we would still only be at debt levels equivalent to 50% of our GDP.

Now, let’s get a little clarity around what this debt looks like. This is not like the type of debt you and I see; this is not a business loan at 15% or a commercial loan at 9%. This type of money is international funding. The government would be securing this money for around 1% on 40-year terms. So, in reality, it is not really affecting the country all that much (this is based on our current AAA rating as a country, one of only a handful that hold this rating). Here is an example: if we borrowed all of the $214 billion, Australia would pay only $2.14 billion in interest per year on an interest-only term. If we then chose to pay back $50 billion each year for four-and-a-bit years, we would have this debt knocked out in no time. The economy can handle that without losing any sleep at all.

Now, here is a fun one for you 🙂. Australia's GDP growth rate has been, on average, 2.5% per annum over the last five years. That is growth of $47.5 billion each year. So, let me riddle you this: if our government borrows $214 billion at a 1% interest rate and we pay back interest only over five years, the payout figure at the end of the five years is $224.7 billion. I propose we just use the growth rate increase to pay off the interest and the loan (i.e. $47.5 billion each year). This would have our debt paid down in 4.7 years and not even felt by the economy because it was money we never had! ... Okay, I will accept my medal now 😉

Yes, of course I am being a little facetious, but you wouldn't respect me otherwise now, would you? Haha.

(Facetious – “treating serious issues with deliberately inappropriate humour; flippant.” Literally my favourite word at the moment)

Also, look at how well our government has been handling COVID-19 and administering bread to the masses. Not once have they shied away from making sure that everyone has been taken care of. Sure, some people may be slipping through the cracks, but could you imagine being in Venezuela right now? Things were bad before this; how well do you think their government is handling its people right now? Or Brazil, where they are not even acknowledging it?

As always, friends, Don’t Panic! Things are never as bad as they seem (granted, sometimes they are worse. Make sure you don’t forget to shop for the week, before the only thing you have left in the house is a can of tuna and no can opener!!).

I love you all. Stay safe!

Shaun Fox

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