Josh Frydenberg’s COVID-19 budget update: What SA needs to know
Australia’s worst budget outlook since World War II has been unveiled. Here’s what it means for South Australians.
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Australia has been plunged into its worst recession since the Great Depression by coronavirus and recorded the biggest budget deficit since World War II.
Treasurer Josh Frydenberg has unveiled an $85.8 billion deficit for 2019-20 instead of the $5 billion surplus that was forecast last year.
It will skyrocket to a $184.5 billion deficit next year – almost four times the previous record deficit.
Mr Frydenberg said the huge deficits “reveal the cost of protecting lives and livelihoods”.
His mini-budget update on Thursday relies on the assumption that Victoria’s lockdown – and SA and NSW’s border closures with the state – will only last six weeks until August 19.
It also assumes Australia’s international border will reopen in January, but with a two-week quarantine period for all arrivals.
Unemployment will peak at 9.25 per cent in the final three months of 2020, up from 7.4 per cent in June.
The economy shrank by 7 per cent in the June quarter when most of Australia was in lockdown, officially tipping the nation into recession for the first time since 1991.
It’s forecast to shrink 3.75 per cent for 2020 – a bigger contraction than the Global Financial Crisis – before growing by 2.5 per cent in 2021.
Net debt has jumped to $488.2 billion, and will blow out to $677.1 billion or 35.7 per cent of GDP by June 2021.
Gross debt will be a massive $851.9 billion or 45.0 per cent of GDP by June next year.
Finance Minister Mathias Cormann bluntly defended the economic cost of measures to get Australia through the coronavirus crisis.
“You asked about the level of debt ... I ask you, what is the alternative?” he responded to a reporter today.
“Are you suggesting that we shouldn’t have provided the support we did to boost our health system, to protect jobs, to protect livelihoods?
“The second point is, and we’ve got to really keep this in context, our debt level as a share of GDP now is lower than the debt level of a share of GDP before we went into the crisis.”
Economists had predicted the deficit could soar as high as $100bn and to almost $200bn next year.
HOW MUCH HAS SA’S GST SLICE FALLEN?
South Australia’s slice of the GST this year will shrink after the total pool was reduced by $5.2 billion in 2019-20.
The expected national GST pool for 2020-21 will fall by $7.6 billion.
The state’s reduced share of GST has not been revealed in Thursday’s update, but will be outlined in the Budget on October 6.
State Treasurer Rob Lucas has predicted it could drop to about $6 billion for 2019-20 and about $5.8 billion for 2020-21.
SA had been forecast to get almost $6.6 billion for 2019-20.
“The downward revisions reflect downgrades to the forecasts for household consumption and private dwelling investment,” the economic statement says.
AUSTRALIA WILL BE IN RECESSION BUT HOW BAD IS IT?
Australia is in its first recession in almost three decades.
Thursday’s update predicts the economy will shrink by 3.75 per cent for 2020.
To put that in context, it’s not as bad as the Great Depression, when GDP shrunk by 10 per cent.
Australia’s economy is also expected to come out of recession by 2021, with GDP forecast to grow by 2.5 per cent for the calendar year.
WILL UNEMPLOYMENT RATES GET WORSE, AND WHEN WILL THEY GET BETTER?
Australia’s jobless rate will hit a peak of 9.25 per cent in the final three months of 2020, up from 7.4 per cent in June.
That’s almost twice as high as the GFC, when unemployment hit 5.8 per cent.
The jobless rate is expected to begin to recover in 2021 but still remain high.
For the 2020-21 financial year, the rate is forecast to drop to 8.75 per cent.
WILL WAGES GROW?
Thursday’s economic update is bad news for anyone hoping for a payrise in the next two years.
Wage growth has dropped to -0.25 per cent in 2019-20, and will low at 1.25 per cent in 2020-21.
Before COVID-19 hit, wages were forecast to rise by 2.5 per cent in 2020 and 2021.
HOW LONG WILL WE BE PAYING OFF THE DEBT FROM COVID-19?
Economists predict it could take up to 30 years to pay off the debt incurred from COVID-19 recovery measures.
Mr Frydenberg today said it “will take a number of years” but did not name a timeframe. “We’re not putting a date on it because we want to grow the economy, and what I can tell you is we will be doing everything we can to get people back into jobs and ultimately to grow the economy,” he told reporters in Canberra.
“The pathway to growing the economy is through skills programs, infrastructure investment and tax reform.”