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The budget deficit has surged to unprecedented levels, and the unemployment rate is set to hit a record high, according to an economic and fiscal update from Treasurer Josh Frydenberg.
Commonwealth Treasurer Josh Frydenberg has shed light on the impact of the COVID-19 pandemic on the nation’s economic and fiscal position.
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Mr Frydenberg revealed that the Commonwealth budget is projected to fall from balance in 2018-19 to an $85.8-billion deficit in 2019-20 and a $184.5-billion deficit in 2020-21.
According to Treasury, the record-high increase in the projected deficit reflects the federal government’s $289-billion stimulus program, a cumulative decline in tax receipts of $95.6 billion over the course of 2019-20 and 2020-21, and a $15.7-billion increase in payment variations.
Mr Frydenberg claimed that the government’s efforts to return the budget to surplus leading into the crisis had helped support an emergency response and absorb the “unprecedented shock”.
The government’s fiscal response to the COVID-19 pandemic is estimated to have increased real GDP by 0.75 per cent in 2019-20 and 4.25 per cent in 2020-21, and estimated to have lowered the peak unemployment rate – expected to hit 9.25 per cent by the end of 2020 (highest since September 1994) – by around 5 percentage points.
However, despite the government’s stimulus program, Australia’s real GDP is forecast to contract by 7 per cent in the June quarter, and by 3.75 per cent over the 2020 calendar year, before recovering in 2021, with real GDP growth of 2.5 per cent.
“There are some positive early signs in the recovery, with indicators suggesting that the unwinding of containment measures in the latter part of the June quarter has led to a noticeable recovery in activity and jobs,” Treasurer Frydenberg said.
“Household consumption is expected to lead the recovery with strong growth in the September quarter, while business and dwelling investment are expected to recover more gradually.”
The government has revealed that debt levels have also “increased significantly” off the back of the pandemic, with net debt expected to hit $488.2 billion (24.6 per cent of GDP) as at 30 June 2020, and increase to $677.1 billion (35.7 per cent of GDP) by 30 June 2021.
“Once the economic recovery is established, stronger growth and an improvement in the fiscal position will help to stabilise government debt as a share of the economy,” Mr Frydenberg said.
Treasurer Frydenberg stressed that the government’s “swift and decisive response” has “saved lives and livelihoods” and has “seen Australia outperform most advanced economies and trading partners”.
“This unprecedented economic response has been designed to be temporary and targeted with measures to support individuals, households and businesses through the crisis, without undermining the structural integrity of the budget,” he said.
The government’s $289-billion program has included the $85.7-billion JobKeeper subsidy (recently extended), support payments for households, temporary cash flow support for employers, and an expansion of the instant asset write-off.
The stimulus has also included the rollout of the HomeBuilder package, aimed at supporting residential construction by providing $25,000 grants to households “substantially” renovating existing properties or constructing new homes.
The government cited figures from the Housing Industry Association, which reported that the HomeBuilder package helped spur an increase of almost 80 per cent in new home sales over the month of June following a record-low result in May.
In minutes released from its July monetary policy board meeting, the Reserve bank of Australia (RBA) also acknowledged the impact of the HomeBuilder program.
“Liaison contacts had indicated that the recently announced HomeBuilder package had provided a boost to buyer interest in the detached housing market, but less so for apartments,” the RBA stated.
The federal government is expected to announce additional programs when it releases its 2020-21 budget on 6 October 2020.
[Related: Government extends JobKeeper scheme]
