Treasurer announces deficits and debt but says Australia will ‘climb the mountain’
Treasurer Josh Frydenberg has laid bare the COVID-19-related debt Australia will carry beyond the next two years but says the country is still in a far stronger position than most around the world.
As Victoria recorded more than 400 new COVID-19 cases for the second consecutive day, Mr Frydenberg used a mid-year budget update to announce an estimated deficit of $85.8 billion for the 2019-20 financial year and an expected $184 billion deficit in 2020-21.
The deficit is partly the result of forecast reductions in tax receipts but mainly the product of the massive stimulus packages the Federal Government has introduced to combat the coronavirus pandemic.
The full budget has been delayed until October and will include a full five-year economic plan, Mr Frydenberg said.
“We are experiencing a health and economic crisis like nothing we have seen in the last 100 years,” he said.
“Our economy has taken a big hit. There are many challenges we must confront. We see the mountain ahead and we begin the climb.
“We will get through this and we will get through it together.”
Mr Frydenberg and Finance Minister Mathias Cormann were at pains to point out Australia’s comparatively strong performance during the pandemic compared to other countries – in terms of lower infection rates, the retention of a AAA credit rating and the ability of stimulus measures like the JobKeeper program to control unemployment.
But unemployment will continue to be an ongoing challenge. While short-term fiscal measures are estimated to have lowered the peak of Australia’s unemployment rate by around five percentage points, it’s still expected to go past 9 per cent in the December quarter, before labour market conditions improve in 2021.
Even still, the labour market will likely take a few years to recover from an economic shock that involved an immediate pandemic-induced decrease in household consumption and business investment, and a forecast 7 per cent drop in real GDP through the June quarter.
Australia’s net debt is estimated at $488.2 billion as of June 30, 2020 and is predicted to rise to more than $677 billion by the end of the current financial year. But government modelling suggests a strong pickup in household consumption through the September quarter and increased economic activity as States other than Victoria continue to emerge from COVID-19 restrictions.
Mr Cormann paid particular tribute to the mining and resources industry and its contribution to keeping the economy ticking over, with continued iron ore demand from China amid Brazilian supply constraints just one bright spot.
On the other hand, international border closures mean the aviation industry and sectors requiring seasonal workers – including tourism, logistics, deliveries, horticulture and agriculture – will continue to battle.
The mid-year budget news comes during a week in which the Federal Government confirmed its JobKeeper and JobSeeker programs would be extended into 2021.
The JobKeeper program, which currently provides businesses significantly impacted by COVID-19 with a blanket $1500 subsidy per employee each fortnight, will be scaled down and more targeted from September 28.
From that date, the subsidy – which must be passed on to employees – will drop to $1200 per fortnight for employees working more than 20 hours a week, before being reduced again to $1000 per fortnight from January 4. For employees working less than 20 hours per week, the subsidy will be $750 per fortnight from September 28 and $650 from January 4.
This tiered system aims to avoid the anomaly that saw some employees being paid more for being idle under the JobKeeper scheme than they would have been if working.
The entry requirements for businesses to be eligible for JobKeeper have also been ramped up.
The basic requirements remain the same – a 30 per cent fall in turnover for business with aggregate turnover of $1 billion or less, a 50 per cent fall in turnover for businesses with aggregate turnover of more than $1 billion and a 15 per cent fall in turnover for charities registered with the Australian Charities and Not-for-profits Commission, excluding universities and schools.
But the details around eligibility have tightened. Businesses will need to assess and then demonstrate an ongoing significant decline in turnover during both the June and September quarters to continue to receive the JobKeeper subsidy.
More than 3.5 million Australians to date have been covered by the JobKeeper program, while two million people are currently receiving income support.
The Federal Government has also committed to investing a further $2 billion to give hundreds of thousands of Australians access to retraining and upskilling in sectors with job opportunities, as the economy recovers from COVID-19.
Jennifer Kirk is an Associate Director in Cannings Purple’s Government Relations team and spent more than seven years in Canberra working for the Commonwealth Department of Finance, the Department of the Prime Minister and Cabinet and the Commonwealth Treasury. If you need help mapping out your government engagement, contact Jennifer.
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