Tom Minear: The big problem with Federal Budget’s blind forecasting during pandemic

Trying to make economic forecasts during a once-in-a-century pandemic is like throwing darts blindfolded at a target that’s moving.

Economic forecasting during a once-in-a-century pandemic is like throwing darts blindfolded.

That’s no judgment of Treasury experts. As federal health chief Brendan Murphy has repeatedly said, no one can predict more than a few months ahead, and as COVID-19 rages overseas, that task is not getting any easier.

Last October, Josh Frydenberg said Australia would be a record $213.7bn in the red this year. Now, the bottom line has improved by $52.7bn.

Treasury had thought the unemployment rate wouldn’t return to pre-pandemic levels before 2024. On Tuesday, the Treasurer said it would fall below 5 per cent next year and stay there — something Australia has achieved just once in half a century.

To deliver on that ambitious promise, Frydenberg is pumping another $45bn into the economy to create an extra 250,000 jobs over the next two years.

The stimulus package contains no great surprises. The bulk of the spending — tax cuts for workers, apprenticeships and skills training, and instant asset write-off and loss carry-back relief for businesses — is merely an extension of what worked last year.

During the pandemic, Australians are more impacted than ever by the Federal Budget.

What didn’t work — a hiring credit for bosses to take on unemployed youths — doesn’t rate a mention, given it’s now expected to pay out just $100m, not $4bn.

Frydenberg proudly told parliament the nation’s “economic engine is roaring back to life”. But the budget papers say the latest forecasts remain rubbery, with a “high degree of uncertainty”.

The government still thinks it can finish the vaccine rollout this year, which will be a major challenge after a rocky start, and it is kicking a decision on reopening the borders into the middle of next year. This means the next election, whenever it is held, will still be fought in a global COVID crisis.

While the budget bridges the gap to Labor’s strengths, it also frames other key battlegrounds.

By extending the low and middle income tax offset for another year, Frydenberg has room to go again before the poll — or bring forward the final stage of his tax relief plan that divides Labor.

The extra cash for childcare is not as much as what Anthony Albanese is offering, and the boost for family violence services will not immediately solve the government’s problems with some female voters.

Aged care reforms worth $17.7bn will be transformational. But experts had predicted another $10bn would be needed, opening the door for Albanese to go further. The stakes are high for his budget reply.

Originally published as Tom Minear: The big problem with Federal Budget’s blind forecasting during pandemic