Australia’s ’eye-watering’ deficit revealed
Australia's budget deficit will hit the $100 billion mark next year, the biggest blowout since the Second World War, as pandemic lockdowns deliver a once in a century hit to tax revenues.
News.com.au has confirmed that the budget deficit to be unveiled on Wednesday by Treasurer Josh Frydenberg will come in under the $100 billion mark for the 2019-20 financial year.
It's a stunning turnaround from the return to surplus this financial year that the Morrison Government had forecast in the December budget update last year.
The Department of Finance confirmed in April that the budget deficit had already blown out to $40 billion as the Morrison Government rolled out JobKeeper and other payments.
But the 'eye-watering' deficit is expected to be over $100 billion in 2020-21, with the final figure to be unveiled by Mr Frydenberg in Canberra today.
Deloitte Access Economics' Chris Richardson has previously predicted the 2020-21 budget deficit could blowout to $200 billion.
As Australia recorded its highest ever daily tally of COVID-19 cases on Wednesday, news.com.au has confirmed the Morrison Government will reveal tax revenues have taken a $25 billion hit as a result of COVID-19.
The Prime Minister will argue that the big-spending measures to save jobs including JobKeeper have saved 700,000 jobs and lowered the peak of unemployment by up to 5 percentage points.
After the COVID-19 crisis first hit earlier this year the Morrison Government delayed the May budget to battle the virus and prepare the stimulus packages to support the economy.
Now, the true cost of those shutdowns in terms of the economic hit and tax revenue foregone will be revealed.
For the first time, the Morrison Government will reveal today that company tax receipts are expected to fall by more than $25 billion over this financial year and last financial year.
Mr Frydenberg said Australians should prepare themselves for a shock as the true impact of the coronavirus pandemic is revealed.
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"You will see eye watering numbers around debt and deficit," Mr Frydenberg said.
"Numbers that Australians have never, ever seen before.
"That's the harsh reality of this pandemic. The coronavirus has required the government to spend unprecedented amounts of money to support people in need."
The Morrison Government announced this week it would extend the JobKeeper program until March 2021 at a cost of $16 billion.
"Every dollar we spend is a borrowed dollar, and that's why it will take some time to pay back the debt," Mr Frydenberg said.
The budget will now be handed down on October 6, but today's figures will outline the challenge in a budget update.
The Morrison Government will warn there is significant uncertainty around the global and domestic economic outlook and that controlling the spread of the virus remains a significant challenge.
Even where infection rates appear to have been controlled, the Treasurer will warn that further outbreaks, such as those experienced in Victoria, could set back recovery at any time.
The figures will confirm record falls in key indicators of business investment, household consumption, the labour market and trade activity over the months since March.
But the good news is it will outline how Australia's success in stopping the spread of the virus in most parts of the country has prevented even more severe health crises.
As a result of the extraordinary uncertainty, the July Economic and Fiscal Update will contain economic and fiscal estimates for 2019-20 and 2020-21 only instead of the usual four-year forward estimates.
The new figures will reveal that the reintroduction of restrictions in Victoria in response to the latest virus outbreak will reduce national real GDP growth by around $3.3 billion.
But the Treasurer will argue that the structural integrity of the Budget has been maintained with more than 99 per cent of the Government's $289 billion economic response to the coronavirus is being spent is over the next two years insisting the big spending is not "baked in."
"The COVID-19 pandemic is a once-in-a-century shock that is placing immense pressure on health systems and economies all around the world,'' Mr Frydenberg said.
"Australia has outperformed nearly every other country in both health and economic outcomes through this crisis. The progress the health front will shape the speed and trajectory for the recovery in Australia."
"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."
Originally published as Australia's 'eye-watering' deficit revealed