Federal budget 2021: Deficit trimmed to $161 billion as national debt heads towards $1 trillion

Australia is deep in the red as the government spends eye-watering sums of money and our debt heads towards a scary figure.

Australia’s deficit is $52.7 billion lower than expected this year thanks to a remarkable economic turnaround, but net debt will still peak at almost $1 trillion within four years.

Red ink on the balance sheet is expected to reach $161 billion this year – down from the record $213.7 billion in the 2020-21 pandemic budget.

The deficit is forecast to drop to $57 billion by 2024-25.

Net debt is expected to increase to $617.5 billion, or 30 per cent of gross domestic product (GDP), and will continue growing to $980.6 billion, or 40.9 per cent of GDP, by June 2025.

This is slightly lower than what was expected in the 2020-21 budget.

“This is low by international standards,” Treasurer Josh Frydenberg said in his budget speech.

“As a share of the economy, net debt is around half of that in the UK and US and less than a third of that in Japan. We are better placed than nearly any other country to meet the economic challenges that lie ahead.”

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It will take 11 years to fall back down to 37 per cent of GDP by June 30, 2032.

“Unprecedented support is seeing the country through the biggest global economic shock since the Great Depression,” Mr Frydenberg said.

“But … it has come at a significant and unavoidable cost.”

The government had already promised to delay the painful task of budget repair, promising no sharp cuts or austerity measures until the economic recovery is well underway – and likely after the next federal election.

“Once Australia secures the recovery and unemployment is back to its pre-crisis levels or lower, our fiscal strategy will shift to the second phase and be focused on its medium term objective of stabilising and reducing debt,” the budget papers read.

The remarkable turnaround in Australia’s fortunes is thanks to its quick recovery from the COVID-19 pandemic, including an unemployment rate of 5.6 per cent, down from 6.9 per cent last financial year and far below the 15 per cent Treasury originally feared.

Australia’s net debt is heading towards $1 trillion. Picture: Sam Mooy/Getty Images

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“The Australian economy has shown remarkable resilience in the face of the COVID-19 pandemic with the economy rebounding at its fastest pace on record over the second half of 2020,” the budget papers read.

“The economy is now expected to have exceeded its pre-pandemic level of activity in early 2021, nine months earlier than expected in the 2020-21 Budget.”

The Morrison government is keen to highlight that Australia has weathered the pandemic better than most comparable nations.

Australia’s economy contracted just 2.5 per cent, instead of the 20 per cent originally feared.

The UK, France and Italy all shrunk more than 8 per cent, while Japan and Canada contracted by around 5 per cent.

Mr Frydenberg said almost half a million jobs had been created since the last budget, and there were 75,000 more Australians in jobs than before the pandemic.

It’s hoped the budget will help create more than 250,000 more jobs by the end of 2022-23.

The government expects the unemployment rate to recover five times faster than the last recession in the 1990s.

“The unemployment rate is expected to fall to 5 per cent in mid-2022 before falling further to 4.75 per cent in mid-2023,” budget papers read.

“The unemployment rate in Australia has only been sustained below 5 per cent once since the early 1970s and in this Budget, we are on a trajectory to do so again.”

Treasury forecasts that the economy will come roaring back to life, with GDP growing by 3 whole percentage points in the space of a year – from 1.25 per cent in 2020-21 to 4.25 per cent in 2021-22.

Mr Frydenberg said the jobs were coming back.

“The economy is coming back,” he said. “Australia is coming back.”