State and territory leaders have been urged to do more of the heavy lifting to help Australia recover from the coronavirus-induced recession, as new projections show the nation's net debt will be a whopping $800 billion higher by the end of the decade due to the pandemic.
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Reserve Bank governor Philip Lowe told national cabinet on Friday states and territories must spend an extra $40 billion over the next two years to help the country avoid the worst impacts of the COVID-19 financial crisis.
Prime Minister Scott Morrison said the spending, on top of $48 billion already committed by state and territory leaders, was needed to address unemployment as the economy "gets back on its feet".
States were spending around 2.5 per cent of their total state domestic product on fiscal support, while the Commonwealth was spending around 15 per cent of GDP, Mr Morrison said.
With interest rates expected to remain steady for at least three years, Mr Morrison said now was the time for states to invest in infrastructure and training programs, or tax and red tape reform.
"The biggest challenge, which is shared by our governments is unemployment. It's jobs," Mr Morrison said.
"It's about getting Australians back into jobs. It's about keeping Australians in jobs. It's about training Australians to get into jobs that will be there in the future.
"With unemployment expected to be at a measured rate of over seven percent over the next two years, jobs is the issue. The number one economic issue."
However, Mr Morrison said spending should be "targeted" and have a short tail.
"It needs to go where it's going to have the best effect," he said.
His plea came as new figures from the Parliamentary Budget Office tipped Australia's net debt to hit $800 billion by 2030.
Before the COVID-19 pandemic, Treasurer Josh Frydenberg set a goal of eliminating Commonwealth net debt by 2030 or sooner.
Instead, the Parliamentary Budget Office predicted net debt could reach between 14 and 24 per cent of GDP by the end of the decade - up to $800 billion higher than it would have been otherwise.
The projection was based on the Reserve Bank of Australia's August economic forecasts and decisions undertaken in the July economic and fiscal update.
It takes in the government's $289 billion coronavirus response package, and increased borrowing, as well as lower than usual government receipts because of the slowing economy.
Receipts are estimated to be between $26 billion and $37 billion lower in 2029-30, while payments are expected to be $5 billion and $10 billion higher compared to the 2019-20 MYEFO.
In June, the budget office predicted government net debt would have been $620 billion higher by 2030 - between 11 and 18 per cent of GDP.
However, the June report did not include the impact of lower migration on Australia's future population.
This projection also assumes there will be no ongoing economic impact from the pandemic, except for lower net migration over the next two years.
"Any additional ongoing negative impact on economic growth, such as on workforce participation rates or productivity growth, could result in a further significant deterioration in fiscal aggregates," the budget office said.
The federal government had expected Australia's economy to start slowly recovering from September, as Victoria's lockdown eased and states continued reopening along the roadmap laid out in May.
Instead, the Victorian shutdown was extended as coronavirus cases spiralled and state premiers slammed borders shut amid fears of further outbreaks.
The Reserve Bank hinted on Tuesday further support may be needed to help the economy recover from COVID-19, even as the number of daily cases continues to fall in Victoria.
