Economic Update: Jobless rate to hit 9.25pc, deficit largest since WWII, Josh Frydenberg says
Unemployment is forecast to peak in December, while the largest budget deficit since WWII looms, the Treasurer says.
Unemployment is forecast to balloon to 9.25 per cent by Christmas and Australia’s real GDP will fall by 3.75 per cent this calendar year, after Josh Frydenberg released a “harsh” July economic statement.
The Treasurer is now projecting the federal budget deficit will be $184.5bn in 2020/21 - the largest deficit since World War II - and net debt will be $677.1bn.
“These harsh numbers reflect the harsh reality we face,” Mr Frydenberg said in Canberra.
“The economic outlook remains very uncertain. Recent events in Victoria are testament to this. (They are) a painful reminder how a setback in combating the virus can impact the speed and the trajectory of our national economic recovery.
“Our economy has taken a big hit. And there are many challenges we confront. We can see the mountain ahead and Australia begins the climb,” Mr Frydenberg said.
The sharemarket rallied after a smaller than expected 2020/21 budget deficit was revealed.
-
WHAT YOU NEED TO KNOW FROM JOSH FRYDENBERG’S ECONOMIC STATEMENT:
Unemployment
• The jobless rate will peak at 9.25 per cent in December
Debt
• Net debt will hit $677.1bn in 2020/21
Budget forecast
• Budget deficit to grow to $184.5bn in 2020/21
GDP
• Real GDP is expected to fall 3.75 per cent in the 2020 calendar year
JobKeeper program
• The wage subsidy will cost the budget $85.7bn over the next four years
Welfare
• Government payments will cost the budget $16.72bn over the next four years
-
Mr Frydenberg laid-out the extent of the economic damage caused by the COVID-19 pandemic with real GDP forecast to fall by 7 per cent in the June quarter and net debt growing to $677.1bn by June 30, representing 35.7 per cent of GDP.
In 2021, real GDP is predicted to grow by 2.5 per cent, recovering from a 3.75 per cent fall across the 2020 calendar year.
The job market, which has been propped-up by the government’s JobKeeper wage subsidy scheme, will peak at 9.25 per cent in the December quarter.
The effective unemployment rate - considered the clearest indicator of how many people are not working during the pandemic - is projected to be between 7 and 10 per cent by the end of the year. It peaked at 15 per cent in April, and fell to 11 per cent this month.
“These are mums and dads. Sons and daughters. Friends and colleagues. At 7.4 per cent in June, the official unemployment rate is expected to peak at around 9.25 per cent in the December quarter this year,” Mr Frydenberg said.
Treasury has estimated the government’s COVID support has saved 700,000 jobs this year and shaved five percentage points off the ultimate growth in unemployment.
Here are Treasury's key assumptions underpinning today's budget update #auspol @australian pic.twitter.com/FfCrpY63nf
— Rosie Lewis (@rosieslewis) July 23, 2020
Finance Minister Mathias Cormann said there was no alternative to the blowouts in both national debt and the budget deficit..
“I ask you, what is the alternative? Are you suggesting that we shouldn’t have provided the support we did to boost our health system, to protect jobs, to protect livelihoods?” he said in Canberra.
“In the circumstances what was the alternative?”
Chalmers: No ideas, few insights
Labor has slammed the government’s economic statement for not including four year projections on employment and growth, and opposition treasury spokesman Jim Chalmers said Mr Frydenberg should have unveiled more new policies aimed at creating jobs.
“There were no new ideas and very few insights ... they told us that unnemployment will keep rising, but they didn’t tell us what they will do to respond to that,” he said in Canberra.
“They failed to tell the 240,000 Australians they expect to lose a job between now and Christmas what they will do to respond to this job crisis.
“We waited a couple of months for this update ... the main message from the government is we need to wait a little more. That’s not good enough.”
Treasury estimates assume Australia’s international borders will re-open in the New Year and global arrivals will undergo a two-week quarantine.
Mr Frydenberg said no final decision had been made on borders, but the government was looking to gradually re-open the country to some countries and foreign university students.
“In terms of the borders the assumption is it very gradually starts to come back. The quarantine that is required, you start to bring in some international students,” he said.
“That is work we have been undertaking but, of course, the environment with respect to the coronavirus is very fluid.
“So decisions haven’t been taken about start dates for that. But these are Treasury’s forecasts and as you can understand it’s a very dynamic environment.”
Australia’s response to the COVID-19 crisis will saddle the nation with a record $850bn gross debt bill and a combined budget blowout of almost $280bn by mid-next year, on the back of the government’s unprecedented response to firewall the economy and save millions of jobs.
The Australian revealed on Thursday that the pre-budget economic statement will reveal a budget deficit of just under $90bn for 2019-20, eclipsing last year’s pre-pandemic hopes of a $5bn return to surplus.
That will more than double for the current year to June 2021 to $186bn following record falls in revenue and investment and the $289bn committed in COVID-19 support.
The major economic statement released by Mr Frydenberg and Finance Mathias Cormann reveals a $25bn hit to company tax receipts over the current and last financial years, reflecting a significant reduction from the $93.7bn collected in 2018-19.
The budget update forecasts the largest deficit as a percentage of GDP since World War II, surging on increased payments responding to the COVID-19 pandemic and devastating summer bushfires.
Treasury predicts the government’s $164bn spending on direct fiscal measures has lowered the peak of the measured unemployment rate by about five percentage points, which they expect will prevent the loss of about 700,000 jobs.
The budget update will reveal Victoria’s coronavirus lockdown is forecast to slash $3.3bn from national real GDP growth, shaving three-quarters of a percentage point from Australia’s economic output in the September quarter.
More Coverage
Labor’s migration target to be overshot by 100,000
With arrivals outstripping expectations and departures less than anticipated, economists and immigrations experts say Labor will oversee a net migration intake as high as 495,000.
Israel a ‘miracle’, says Labor senator
Labor Senator Deborah O’Neill has condemned the rise of anti-Semitism, as politicians from both sides of politics paused to commemorate October 7 in Canberra.