SA’s $1.4bn GST revenue lost, plus what else we learned in Josh Frydenberg’s budget update
Coronavirus will blow a $1.4bn hole in our state’s GST revenue, while almost one in 10 South Aussies will be out of work by Christmas. Here’s what else we learned from the Treasurer’s budget update.
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Coronavirus will blow a $1.4bn hole in the state’s GST revenue, while almost one in 10 South Australians will be out of work by Christmas, according to the latest economic snapshot.
Australia’s net debt will also jump to a whopping $677bn over the next 12 months.
The federal budget will plunge $184.5bn into the red in 2021, instead of the $6.1bn surplus that had been forecast last year.
A second wave of infections could cost $2bn a week if the rest of the country is forced back into lockdowns like Victoria.
Population growth will drop to its lowest since 1917 – the height of World War I – as Australians put off having children and migration grinds to a halt.
“These harsh numbers reflect the harsh reality we face,” Josh Frydenberg said.
In his budget update on Thursday, the Federal Treasurer revealed unemployment would peak at 9.25 per cent in the final three months of 2020.
The nation’s economy will shrink 3.75 per cent in 2020, a bigger hit than the Global Financial Crisis and the first recession since 1991.
It will emerge from recession next year, when GDP is tipped to grow by 2.5 per cent.
But gross debt will be a massive $851.9bn, or 45 per cent of GDP, by June next year.
“We must remain strong,” Mr Frydenberg said.
“We must draw strength from our resilience as a nation and a people.
“We will get through this and we will get through this together.”
The national GST pool will drop by $5.2bn for 2019-20 and $7.6bn in 2020-21.
South Australian Treasurer Rob Lucas estimated it would cut the state’s GST share by $1.4bn this year – and it could be even higher than that.
“Clearly the impact of the second wave and the shutdown in Victoria is having a significant impact on future consumption expenditure,” Mr Lucas said.
“If there’s less money being spent nationally, the national pool is lower, therefore SA’s share is lower as well.”
SA’s deficit could be more than $2bn this year, while debt could potentially blow out to more than $30bn, Mr Lucas said.
But higher fees and charges won’t be used to help the state recover.
“We’re not looking at smashing South Australians in new taxes,” Mr Lucas said.
SA’s unemployment could hit “around” 10 per cent by Christmas but if restrictions continued to ease, the state may not have the worst jobless rate in the nation, he said.
Opposition treasury spokesman Stephen Mullighan has accused the State Government of being “asleep at the wheel getting stimulus funds out to the community” after it was revealed less than $300 million of the $1bn stimulus package had been spent by July.
But Mr Lucas rejected that criticism. “It’s absolutely critical that we have funding not just for the first three months of COVID-19, but we’ve got funding for the rest of this year ... and the start of next year,” he said.
He added the Federal Government’s economic outlook could change, given it was based on Victoria recovering after a six-week lookdown.
Deloitte economist Chris Richardson said the budget update showed Australia’s recession was “already close to as bad as it gets for the economy”.
“Lots of younger Australians are worried that we’ve just mortgaged their future and we truly have not. Yes, debt is up, but interest rates are down,” he said.
He added the interest cost from the extra debt would be about $3 extra a week for the average Australian given the record low interest rates.
Federal opposition treasury spokesman Jim Chalmers said it was a “badly missed” opportunity to issue new measures to get Australians back into jobs.
“There is a lot of anxiety in the community, there is a lot of uncertainty,” he said.
Eight things budget update revealed
Q: Will Australia have a baby boom from COVID-19?
A: Don’t expect a pandemic baby boom, despite people being forced to stay home during shutdowns.
Population growth will drop to its lowest rate since 1917, which was the middle of World War I when more than 330,000 Australians were overseas, the budget update predicts.
People will postpone starting families due to weaker economic conditions, while overseas migration will see a seven-fold drop to 31,000 for 2020-21.
Q: When will borders reopen?
A: Premier Steven Marshall hasn’t set a date for opening South Australia’s border to Victoria but the budget update says SA’s and NSW’s borders to the state will be closed “until 19 August”.
It also contains the bold prediction that Australia’s international travel ban will be lifted by January 1 but a two‑week quarantine period will be required of all overseas arrivals.
Q: Is a travel bubble with New Zealand still on the cards?
A: The budget update assumes a travel bubble will open with New Zealand this year.
It names “New Zealanders and a small number of international students” as the only overseas travellers that will be able to come to Australia between July and December 2020, beyond Australian citizens and permanent residents.
Tourism Minister Simon Birmingham on Tuesday said Victoria and NSW’s cases would “weigh on the minds of NZ officials” but that there had been behind-the-scenes work by both countries to put COVID-safe practices for a travel bubble in place.
Q: When will Australia be out of recession?
A: By next year. Australia is currently in the deepest recession since the Great Depression, with GDP forecast to fall by 3.75 per cent over the 2020 calendar year. By 2021, it’s tipped to grow again by 2.5 per cent.
Q: Is a second wave likely?
A: If Australia follows Singapore and South Korea’s example, which also had “initial success” suppressing COVID-19, there are likely to be new outbreaks.
Melbourne’s second wave is a “sobering reminder of the virulence of the virus and its potential to continue to disrupt the way we live,” the budget update says.
“Though Australia is well prepared to manage the health crisis, the possibility of a major second wave of infections remains,” it says.
“In Singapore, a spike in new cases was observed in late April and new infections have been slow to decline.
“Similarly, after an initial peak was suppressed quickly, new cases in South Korea have slowly risen due to small but persistent groups of new infections.”
Q: Will restrictions be reintroduced?
A: Higher rates of testing, contact tracing and increased health system capacity “may enable persistent but small outbreaks to be managed without the reintroduction of large‑scale restrictions,” the budget update says.
But widespread outbreaks and high rates of community transmission “would likely necessitate the reintroduction of more severe health controls, of the kind we have seen in Victoria”.
Q: How much will it cost the economy if restrictions are reintroduced?
A: About $4 billion a week if the country has to go back into the tough restriction levels imposed in April.
If we continue to reopen, the economy will improve by $2 billion a week.
“Less severe or more geographically targeted restrictions would not have as large of an impact on economic activity,” it says.
“Rather than experiencing another sharp downturn in economic growth, it would be more likely that the speed of economic recovery is slowed.”
Q: How long will it take for unemployment to recover?
A: It could take about seven years for unemployment to drop.
Treasurer Josh Frydenberg would not set a time frame for the jobless rate to meaningfully drop from its peak of almost 10 per cent in the final three months of 2020.
But the budget update says: “In the recession of the early 1990s, it took around seven years for the unemployment rate to fall from its peak of 11.2 per cent in 1992 to below 7 per cent.”