Treasurer Josh Frydenberg and Minister for Finance Mathias Cormann released a joint statement today. The Economic and Fiscal Update shows the impact of the COVID-19 pandemic on our nation’s finances as well as the scale of the support that has been provided to prepare our health system and cushion the blow for millions of households and businesses.
The Government has acted swiftly and decisively to provide economic support for workers, households and businesses of around $289 billion or the equivalent of 14.6 per cent of GDP.
This necessary and unprecedented level of economic support, coupled with declines in taxation receipts of $31.7 billion in 2019‑20 and $63.9 billion in 2020‑21, has significantly impacted the budget position.
Payments variations, including in demand driven programs, also increased by $15.7 billion, predominantly as a result of the impact of the COVID-19 pandemic on the economy.
The underlying cash balance is forecast to decrease from balance in 2018-19 to a $85.8 billion deficit in 2019-20 and a $184.5 billion deficit in 2020-21.
Through the Government’s strong fiscal management, Australia entered the COVID-19 crisis in a position of economic and fiscal strength. We returned the budget to balance for the first time in 11 years which underpinned the capacity to respond to this unprecedented shock.
Our fiscal support is targeted, timely and temporary to ensure that it does not undermine the structural integrity of the Budget with all three major credit ratings agencies having now reaffirmed Australia’s AAA credit rating during the pandemic.
The economic support in response to the COVID-19 pandemic is estimated to have increased the level of real GDP by around ¾ per cent in 2019-20 and around 4¼ per cent in 2020-21. The fiscal measures are also estimated to have lowered the peak of the unemployment rate by around 5 percentage points.
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Debt levels have increased significantly as a result of the COVID-19 pandemic, however Australia continues to have a low level of debt-to-GDP compared to other countries. Net debt is expected to be $488.2 billion (24.6 per cent of GDP) at 30 June 2020 and increase to $677.1 billion (35.7 per cent of GDP) at 30 June 2021. Once the economic recovery is established, stronger growth and an improvement in the fiscal position will help to stabilise government debt as a share of the economy.
Despite the support to the economy from the measures the Government has taken, real GDP is forecast to have fallen sharply in the June quarter by 7 per cent. However, the easing of health restrictions in line with the health advice is expected to deliver an increase in economic activity from the September quarter and beyond.
There are some positive early signs in the recovery with indicators suggesting that the unwinding of containment measures in the latter part of the June quarter has led to a noticeable recovery in activity and jobs.
Household consumption is expected to lead the recovery with strong growth in the September quarter, while business and dwelling investment are expected to recover more gradually.
On a calendar-year basis, real GDP is predicted to grow by 2½ per cent in 2021, after a fall of 3¾ per cent in 2020.
Through no fault of their own, as a result of the pandemic around 709,000 jobs were lost across the country in the June quarter.
The unemployment rate is forecast to peak at around 9¼ per cent in the December quarter although labour market conditions are expected to strengthen beyond 2020.
The economic and fiscal outlook remains highly uncertain. The Government will provide forecasts and projections over the forward estimates period and medium term in the 2020-21 Budget, to be delivered on 6 October 2020.