The unprecedented response to the COVID crisis has left the federal budget $85.8 billion in the red with projections of a $184.5 billion hole in the 2020-21 financial year as revealed in Thursday’s economic update.
Just days after the government announced it would be extending modified versions of JobKeeper and JobSeeker, treasurer Josh Frydenberg and finance minister Mathias Cormann delivered a long-awaited major economic update on Thursday.
The federal government had been foreshadowing grim economic data ahead of its first budget update since the pandemic took hold.
Mr Frydenberg said on Wednesday that the release would include some “eye-watering numbers” on debt and deficit. His warning was not off the mark.
The government has revealed what it said is the biggest deficit since World War II, expected to be more than $184 billion this financial year.
Some 709,000 jobs were lost in the June quarter alone, with unemployment tipped to hit 9.25 percent in the December quarter. Treasury said the government’s intervention and spending measures – $289 billion – saved some 700,000 jobs, keeping the unemployment rate five points lower than it would otherwise be.
The unemployment impact had been hard “particularly for women and young people”, the update said.
“In 2020, the Australian economy is expected to endure its largest annual fall in economic activity on official record.”
When asked about whether Australians would be concerned about the record deficit, Mr Cormann answered “what was the alternative?”.
Company tax receipts are predicted to plunge by $13 billion in the 2019-20 financial year and $12 billion in 2020-21 – about 10 per cent of the normal amount, based on the 2018-19 figure of $93.7 billion.
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“The government is providing timely economic support with $289 billion in fiscal and balance sheet measures, equivalent to around 14.6 per cent of GDP,” Mr Frydenberg said.”
“This action, together with large declines in taxation receipts and increases in payments, has seen a major deterioration in the budget position, with estimated deficits of $85.8 billion in 2019-20 and $184.5 billion in 2020-21.”
However, there is a slight silver lining with the easing of containment measures expected to provide a lift to the nation’s economy, from September.
“The economy is forecast to recover faster than in past recessions due to the lifting of restrictions, but it will still be a long road back and activity is expected to remain below pre-COVID-19 levels for some time,” the update reported.
Real gross domestic product is forecast to grow 2.5 percent in 2021, after plummeting 3.75 percent in 2020.
“Australia has outperformed most advanced economies in terms of both health and economic outcomes to date through this crisis,” the treasury update said.
Earlier, The New Daily reported that Victoria’s deteriorating COVID situation was expected to cost $3.3 billion in GDP growth, with the huge figure coming from just six weeks of the state’s new lockdowns. That’s about 0.75 per cent of the September quarter GDP.
The Victorian government said on Thursday it expected gross state product to plunge by more than 5 per cent in 2020.
In a rare budget positive, mining investment is forecast to grow by 4 per cent and 9.5 per cent in 2019 and 2020 respectively – said to be the first growth in seven years.