Australia’s biggest deficit since World War II revealed

The Morrison Government was meant to unveil Australia’s long-awaited surplus this year. Instead Australia has recorded the biggest deficit in decades.

Australian workers face decades of debt with the nation hit with an $850 billion debt bomb in borrowings to fight the COVID-19 crisis.

It’s a debt and deficit challenge that the Morrison Government has warned voters will take more than a decade to repay, but is necessary to protect jobs and the economy.

Treasurer Josh Frydenberg has revealed the stunning cost of the COVID-19 crisis today in an economic update that shows Australia’s budget deficit will hit the $184 billion mark this financial year, in the biggest blowout since World War II.

Just months ago, he had hoped to hand down the first budget surplus in Australia in years.

As pandemic lockdowns deliver a once in a century hit to tax revenues, he has also confirmed the 2019-20 budget deficit – the difference between the government’s revenue and outlays in that year is $85.8 billion.

“These harsh numbers reflect the harsh reality we face the economic outlook remains very uncertain,” Mr Frydenberg said.

“Recent events in Victoria are a testament to this, a painful reminder, how a setback in combating the virus can impact the speed and the trajectory of our national economic recovery.”

Those figures reflect the $289 billion that the Morrison Government has dropped on stimulus measures including direct payments to people on welfare, increases to JobSeeker and the JobKeeper wage subsidy.

But it’s the debt levels that have blown out as the Prime Minister and Treasurer were forced to borrow more money to pay for those measures and were hit by lower tax revenues.

Mr Frydenberg said that Australia continues to have a low debt to GDP ratio compared with other countries.

“Australia has performed better on the health and economic front than almost any other nation in the world,” he said.

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, the Morrison Government revealed tax revenues have taken a $95.6 billion hit as a result of COVID-19.

Mr Frydenberg pointed to big-spending measures to save jobs including JobKeeper, which have saved 700,000 jobs and lowered the peak of unemployment by up to 5 percentage points.

“The coronavirus crisis has led to unprecedented economic support to the tune of around $11 trillion here in Australia,” Mr Frydenberg said.

“The actions we have taken have saved lives and livelihoods.”

He said between March and May, 870,000 jobs were lost and more than one million Australians saw their working hours reduced, in many cases, to zero.

Mr Frydenberg said he expected unemployment rate to peak at 9 per cent in the December quarter.

Mr Frydenberg said Treasury had based its assumptions on Victoria being locked down for six weeks from July 9, after which restrictions would progressively are assumed to be gradually opening up.

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Josh Frydenberg told Australia to prepare for an ‘eye watering’ deficit.

Ahead of the announcement Mr Frydenberg said Australians should prepare themselves for a shock as the true impact of the coronavirus pandemic is revealed.

“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 outlined the challenge in a budget update.

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.

“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.”