Treasury boss Steven Kennedy has warned this summer’s devastating bushfires and the emergence of the coronavirus will hit the economy and the federal budget.
Addressing the Senate economics committee in a rare unscheduled appearance on Thursday night, the Treasury secretary said COVID-19 could slice “at least” 0.5 percentage points from economic growth in Australia in the March quarter, reflecting the impact it has had on tourism, education and the Australian dollar.
This would come on top of the 0.2 percentage point detraction from growth from the bushfires.
“Beyond this preliminary estimate for the March quarter, it is too early to tell, given the uncertainties, what the full impact of the COVID-19 coronavirus will be on the economy,” he said.
The impact of the deadly coronavirus epidemic, including around the world, will depend on various factors – the extent and how quickly it spreads, disruptions to ports and, should it become more prevalent in Australia, the direct impact on activity.
“The bushfires and now the emergence of the COVID-19 coronavirus will undoubtedly have a negative impact on the fiscal position,” Dr Kennedy said.
In the mid-year budget review, Treasurer Josh Frydenberg had forecast a $5 billion surplus, which would have been the first in a decade.
When comparing COVID-19 to the SARS outbreak in 2003, Dr Kennedy said it is likely to be “deeper, wider and longer”.
“It will create more risk of a prolonged downturn and fiscal support will be needed to accelerate the recovery of the economy, especially once the health and health management effects of COVID-19 begin to fade,” he said.
In contrast, he described the impact of SARS having been a “V-shape” – “a sharp relatively contained reduction in activity, mostly in Asia, followed by a quick bounce back”.
A multibillion-dollar stimulus package to counter the economic impact of the coronavirus is expected to be released next week.
It is tipped to include tax incentives to help businesses with cash flow, alongside tax deductions for new investments.
Funding will be also aimed at infrastructure spending, which normally translates to major road and rail projects.
But Mr Frydenberg said there would be no “cash splash” and the package would not damage the work done on getting the national budget back to surplus.
“It will be worth billions in the terms of the impact it will have,” he told Sky News.
“The package of measures will be responsible and will be scalable.”
Shadow treasurer Jim Chalmers said Labor intended to play a constructive role in helping Australia through the period.
But Dr Chalmers put the government on notice should Australia’s decades-long run of continuous economic growth be broken.
“The Liberals and Nationals are now the custodians of those three decades of unbroken economic growth,” he said.
“Australia is being tested right now by the economic impacts of this coronavirus and the government is being tested as well.”