Australia will record the largest budget deficit in modern history, after the coronavirus pandemic triggered an unparalleled spending blitz, the Federal Government is expected to announce tomorrow.
- Treasurer Josh Frydenberg will announce the largest budget deficit since WWII
- Coronavirus spending measures have topped $164 billion
- Just seven months ago, the Government was expecting a budget surplus
Treasurer Josh Frydenberg will update the nation on the state of the economy, laying bare the havoc COVID-19 has wrought on the Government’s books and on the economy at large.
The deficit will be the largest recorded by an Australian government since World War II, and economists say the market expectation is in the realm of $200 billion in 2020-21.
“We can expect to see a lot of red ink, I expect that we’re probably going to be looking at a budget deficit in this year in excess of $200 billion,” Grattan Institute chief executive Danielle Wood said.
“So things are quite dire in terms of the budget position.”
The total cost of the Government’s coronavirus spending measures tops $164 billion, more than half of which is due to the $86 billion JobKeeper scheme, which was extended until March earlier this week.
Nearly all of that support is delivered over the past financial year and the current one.
The impact on the budget bottom line has been exacerbated by the fact that struggling businesses have been earning less money and paying less tax in a flagging economy.
Mr Frydenberg will announce that across the 2019-20 and 2020-21 financial years, company tax receipts are expected to slump by $25 billion, putting a further dent in the budget.
“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 cushion the blow for millions of Australians,” Mr Frydenberg said.
A forecast fall in business investment will also be announced, with investment expected to fall 12.5 per cent in 2020-21, having already fallen 6 per cent in 2019-20.
Mr Frydenberg indicated on Tuesday that some of the figures he would unveil would be “eye watering”.
Earlier this week, the Federal Government announced an extension of both JobKeeper and the coronavirus supplement that goes to welfare recipients on payments like JobSeeker and the Youth Allowance.
The extension of each payment, which will see the rate for both payments reduced from September, is projected to cost $20.4 billion.
Surplus projected just seven months ago
It has been clear for months that the pandemic would upend the Government’s plan to deliver a budget surplus in the 2019-20 financial year.
Just seven months ago, in December’s Mid-Year Economic Forecast (MYEFO), the Government projected it would end the financial year in the black.
At the time, a surplus of $5 billion was anticipated, with growing surpluses across the rest of the forward estimates.
Net debt at the time of MYEFO was projected to reach $392 billion, and it is expected that will swell substantially on tomorrow’s announcement.
Tomorrow’s economic statement will also include forecasts for the coming financial year, including GDP growth, wage growth and employment figures.
However the forecast will not encompass the four-year forward estimates period, with longer-reaching predictions to be outlined in October’s Budget.