Shutdown to blow $6 billion hole in Victoria’s economy

Australia’s economic recovery has had a setback with Victoria’s new restrictions expected to starve its economy of $6 billion.

Federal Government spending blew out to almost $80 billion in May, as wage subsidy payments and cash flow boosts flowed to struggling businesses feeling the brunt of the COVID-19 pandemic.

This comes as Treasurer Josh Frydenberg today said Victoria’s six-week lockdown would cost the national economy $6bn.

Government figures reported by the Parliamentary Budget Office on Wednesday showed the federal deficit hit $68.5 billion for the 11 months to May.

Government spending in May ballooned to $79.5 billion, almost double the expenditure during the same month last year.

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This was a result of the JobKeeper wage subsidy and temporary cash flow boosts for small and medium businesses during the height of the economic crisis.

As states considered easing restrictions that slashed economic growth during the pandemic, net debt also rose to $464 billion – about $71 billion higher than forecast come June 30.

Total revenue to May was $18.1 billion lower than expected for the financial year.

The amount is the equivalent of the Commonwealth’s annual spending on schools or family tax benefits.

Food supplies are seen at the public housing towers in North Melbourne. Photo: Daniel Pockett

“Revenue was $9.7 billion or 18 per cent lower for May 2020 than in May 2019, mainly due to lower company tax and personal income tax revenue as a result of the impact of COVID-19, and administrative support,” the Parliamentary Budget Office reported.

“Goods and services tax revenue – which flows directly through to state and territory budgets – was $1.3 billion or 19 per cent lower than in May 2019.”

Meanwhile, the six-week lockdown in Victoria will wipe a further $1 billion a week from the Victorian economy.

Mr Frydenberg today revealed the reintroduction of restrictions for six weeks across metropolitan Melbourne and the Mitchell Shire was a blow to the nation’s economic recovery.

“Victoria is about a quarter of the national economy and obviously what happens in Victoria matters to the rest of the nation,” he told Sky News.

“Particularly, it goes to consumer and business confidence and the speed and trajectory of the recovery.”

He said the government would continue to provide support for “those who need it” but would reveal more details about the JobKeeper and JobSeeker schemes in his July 23 mini-Budget.