Everyone seems to agree that avoiding a severe fiscal crisis will be impossible without faster economic growth. Currently 78.7% of the government’s primary borrowing requirement is used to pay interest on previous borrowings. Within 10 years, the overall government debt-to-GDP ratio will be 80.9%. To reverse course, private-sector economic growth needs to average a highly improbable 5.3% per annum for at least a decade.

The government has no idea where economic growth originates. In its recent medium-term budget policy statement (MTBPS), the Treasury pointed out that economic growth has fallen in almost every fiscal year between 2007 (5.9% per annum) and 2019 (0.5% per annum). Yet, even as growth has dwindled, the Treasury has forecast an abrupt resumption and lasting acceleration of economic growth in every budget over the period.

Growth, in other words, has been taken for granted: it is simply assumed to be the natural, inevitable state of things. A headline in the medium-term budget — “The growth puzzle: why so weak for so long?” — and a rambling wish-list mostly linked to additional government spending are telling.

Economic growth is not inevitable. At its heart, growth is causally related to business profitability. If the goal of a market economy is to maximise consumer well-being, businesses’ pursuit of profit is the means of achieving it. If businesses experience declining profitability, business expansion and all the positive things that go with it — investment, employment, innovation, competition, taxes and the like — will decline as well.

It is therefore alarming that corporate profitability is currently the lowest in nearly 25 years. Last year, companies — both publicly traded and privately held companies, excluding state-owned enterprises (SOEs) and non-corporate entities, such as partnerships and sole proprietorships — generated an after-tax return on assets of 13.5%, which is significantly below the peak of 17.9% reached in 2004. The economy’s operating surplus in 2019 will only be known next year, but it is likely that business profitability will drop below 10% for the first time in 30 years.