Budget 2020: A lot must go right, we assume

Scott Morrison, left, with Josh Frydenberg, who has warned of ‘substantial uncertainty’ about the budget assumptions on the impact of coronavirus and the possibility of a vaccine Picture: Adam Taylor

The early release of a viable COVID-19 vaccine next year and the relaxation of Australia’s domestic and international borders could give the economy a $34bn boost to June 2022 and push GDP 1.5 percentage points above the budget forecast of 4.25 per cent.

But the absence of a vaccine, continued coronavirus outbreaks in Australian states and globally, and lockdown restrictions would cut $55bn from the economy and reduce growth in both 2020-21 and 2021-22 by a full percentage point.

The underlying coronavirus assump­tion of the 2020-21 budget is that there would be “population-wide Australian COVID-19 vaccin­ation to be fully in place by late 2021” and that border restrictions and movement bans would be “progressively lifted”.

The Treasury assumed that a vaccine would mean state and international border bans would be lifted and that, with the stimulus and support from the biggest ­government spending on record, economic activity would turn around from a 3.75 per cent fall this year to a 4.5 per cent rise next.

But Josh Frydenberg has warned of “substantial uncertainty” about the budget assumptions on the impact of coronavirus and the possibility of a vaccine.

The Treasurer said on Tuesday night that “no stone will be left ­unturned in the search for a vaccine­”, as he announced $1.7bn over two years to get access to 84.8 million doses for Australians over two years.

The budget papers said health outcomes would improve faster than expected if a vaccine was available earlier than expected and would renew global growth, lift domestic business and increase consumer confidence.

Treasury assumed for the budget estimates that restrictions in Victoria, which have cost the national­ economy $16bn, would be progressively lifted as virus cases decline and that state border restrictions currently in place would lift by the end of the year except for Western Australia, where they would remain until next April.

International travel was also assumed to be growing through to the end of next year, although it would be low and slow.

But the Treasury warns that there are “large upside and downside risks associated with the ­forecasts” because of the coronavirus.

In the scenario of an earlier vaccine, the estimate is that renewed­ confidence and economic activity, as well as travel and international students, would lift economic activity by $34bn to the June quarter in 2022 and lift GDP by 1.5 percentage points.

“The boost in consumption and a more rapid easing in restrictions would benefit industries most affected by the health measures, such as accommodation and food services and arts and recreation services,” Treasury said.

The “downside scenario” of a later vaccine assumed rolling ­outbreaks would mean the re­imposition of severe containment measures, which would have a similar impact on the national economy as the “second outbreak in Victoria”.

“Under this scenario, econo­mic activity would be $55bn lower across 2020-21 and 2021-22 ­compared with the forecasts, prolonging the national economic recovery,” Treasury said.

“Economic growth would be one percentage point lower in both 2020-21 and 2021-22 compared with the forecasts.’’