Treasurer announces $184.5 billion deficit forecast, the largest since World War II

Treasurer Josh Frydenberg has announced a deficit of $85.8 billion in 2019-2020 and $184.5 billion in 2020-2021 due to coronavirus spending measures and a downturn in revenue.

Australian Treasurer Josh Frydenberg.

Australian Treasurer Josh Frydenberg. Source: AAP

Treasurer Josh Frydenberg says Australia faces its largest budget deficit since World War II as the coronavirus crisis wreaks havoc on the country's finances. 

Mr Frydenberg on Thursday morning gave the federal government's economic update, also revealing that unemployment is expected to peak around 9 per cent in December. 

He said the federal government recorded a deficit of $85.8 billion in 2019-20, which is projected to blow out to $184.5 billion in 2020-2021 as a result of record spending.

"These harsh numbers reflect the harsh reality we face," Mr Frydenberg told reporters in Canberra on Thursday as he gave an economic and fiscal update.

"The impact of the coronavirus has led to a significant decline in tax receipts and a large increase in government payments."

Net debt was at $488.2 billion at 30 June - or 24.6 per cent of GDP - and will hit a record $677.1 billion the following year, more than a third of the economy's size.

National GDP was being propped up by fiscal support to the tune of $289 billion, or 14.6 per cent of GDP.

Around the world, unprecedented support totalling $11 trillion was attempting to keep the global economy afloat.

Mr Frydenberg said Australia "had fared better on the economic front during the crisis than almost any other counter in the world".

"Despite our increased debt levels, they remain lower than what many comparable nations went into this crisis with," the treasurer said.

But he said the outlook remained uncertain, highlighted by the Victorian outbreak.

"(It's) a painful reminder of how a setback in combating the virus can impact the speed and trajectory of our national economic recovery," he said.

Unemployment was expected to peak at 9.25 per cent in the December quarter, lower than initially expected at the onset of the pandemic.

A full set of economic and fiscal data for the four-year forward estimates won't be revealed until the budget on 6 October.

Finance Minister Mathias Cormann said that by then, the government would also be in a position to detail the 10-year, medium-term outlook too.

"The economic and fiscal outlook remains highly uncertain given what is continuing to occur globally and in some parts of Australia," he said.

The update is expected to show Victoria's six-week renewed lockdown to contain the second wave of coronavirus infections will slice $3.3 billion off the national economy.

The government has spent or planned $164 billion of supports, notably the $86 billion JobKeeper wage subsidy and $17 billion JobSeeker supplement.

At the same time, revenues have plummeted.

Treasury says the supports put in place have saved 700,000 jobs and lowered the forecast peak unemployment rate by five percentage points.

"Between March and May, 870,000 jobs were lost and more than one million Australians saw their working hours reduced," Mr Frydenberg said on Thursday.

"These are mums and dads, sons and daughters, friends and colleagues."

The official jobless figure was 7.4 per cent in June with the average unemployment rate forecast to be 8.75 per cent in 2020/21.

Unemployment is expected to peak at nine and a quarter per cent.
Unemployment is expected to peak at nine and a quarter per cent. Source: AAP

Since March, there have been record falls in key indicators of business investment, household consumption, the labour market and trade.

Mr Frydenberg said these "eye-watering" numbers reflected the harsh reality of the coronavirus.

"Our announced measures, together with large declines in taxation receipts, has seen a hit to the bottom line, but this has been necessary in order to cushions the blow for millions of Australians, and to keep businesses in business and keep Australians in jobs," he said.

But he noted the main budget impact had been quarantined to the two financial years of 2019/20 and 2020/21.

"We carefully designed our economic support measures to ensure we maintained the structural integrity of the budget," he said.

Residents in metropolitan Melbourne are subject to stay-at-home orders and can only leave home for essential work, study, exercise or care responsibilities. People are also advised to wear masks in public.

People in Australia must stay at least 1.5 metres away from others. Check your state’s restrictions on gathering limits.

If you are experiencing cold or flu symptoms, stay home and arrange a test by calling your doctor or contact the Coronavirus Health Information Hotline on 1800 020 080.

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4 min read
Published 23 July 2020 at 5:48am
Source: AAP, SBS