Today should have been the day Treasurer Josh Frydenberg delivered the Federal Budget for 2020-21. Instead, the Treasurer provided an update on the economy which has been battered and bruised by bushfires and a pandemic.
At the end of last year, the Australian economy was on track for its first surplus in a decade.
Today’s update reveals that in fact, Australia is on track for the largest deficit in our history with the Government injecting $320b, or 16.4% of GDP, of emergency support into the economy in just a few months. To the end of March the underlying cash deficit sits at $22.4b, $9.9b higher than forecast in MYEFO.
The Treasurer pointed to a statement made by Standard & Poor’s that while the government’s fiscal measures will “weigh heavily on public finances in the immediate future, they won’t structurally weaken Australia’s fiscal position”.
We are all keen to return to the “new normal” – reopening businesses, people back at work and our children back in schools. With a national framework to ease restrictions revealed last Friday, Treasury predicts an increase to GDP of approximately $9.4b each month. Of this $9.4b, increased retail will contribute $2.9b, opening of cafes, pubs, clubs, health and fitness gyms will contribute $2.2b and the opening of schools will contribute nearly $2.2b.
However, the Treasurer has also warned of an economically catastrophic second COVID-19 wave if the balance between social distancing and easing restrictions isn’t maintained. The cost to the States could be hundreds of millions of dollars a week if restrictions need to be reimposed – with New South Wales and Victoria with the most to lose if restrictions were to be reinstated.
- New South Wales: $1.4b/week
- Victoria: $1b/week
- Queensland: $800m/week
- Western Australia: $500m/week
- South Australia: $200m/week
- Tasmania: $100m/week
- Australian Capital Territory: $100m/week
- Northern Territory: $40m/week
The pathway forward
The Treasurer said that Australians know there is no money tree. What we spend today must be repaid later.
To rebuild the economy the Treasurer highlighted the importance of a healthy economy as the foundation for everything else. The private sector will play an important role in job creation, with the Treasurer hinting future policies to support productivity, reskilling and upskilling, tax and industrial relation reform to enhance competitiveness and continued support for major infrastructure developments.
- To the end of March, the underlying cash deficit was $22.4b, $9.9b higher than forecasted in MYEFO
- Tax receipts were $11.3b lower than forecast in MYEFO
- Payments were $1.4b lower than forecast in MYEFO
- IMF is predicting the world economy will contract 3% this year
- By comparison, there was a global contraction of 0.1% in 2009 during the GFC
- Treasury forecasting 10% peak in employment for the June quarter
- Household investment dropped 16%
- Business investment dropped 18%
- Dwelling investment dropped 18%
- Household savings have increased as more people stay home and are more cautious in their spending
- March business confidence lowest ever
- An updated economic and fiscal outlook will be provided in June following the release of the March quarter national accounts