Josh Frydenberg banking on post-Delta rebound

Josh Frydenberg is betting a post-Delta economic rebound will underpin another rapid budget improvement in the months ahead.

Treasurer Josh Frydenberg says lockdowns can’t go on forever, and nor can the Commonwealth’s emergency support. Picture: Martin Ollman

Josh Frydenberg is betting a post-Delta economic rebound will underpin another rapid budget improvement in the months ahead, even as economists warned that this year’s deficit could prove the largest yet as lockdowns bite.

The Treasurer confirmed a $134.2bn underlying cash deficit for 2020-21, a $27bn improvement from the May budget forecasts, as a powerful labour market rebound during the June quarter helped drive a big lift in tax receipts and a much larger than expected drop in the number of Australians on welfare.

Mr Frydenberg said “what these numbers should give people confidence about is that the economy, once restrictions are eased, does bounce back and it bounces back strongly”.

“No one is overlooking the significant impact that these lockdowns are having on our economy. But that is why it’s so important that we open up in accordance with the national plan,” he said.

Economists also believe that the easing of restrictions will drive a recovery towards the end of the year, but highlight the uncertainty attached to reopening with Covid still in the community.

ANZ economist Hayden Dimes said “given the lockdowns essentially started this financial year, the $106.6bn deficit expected in 2021-22 will easily be (up to) $30bn worse than estimated”.

“The next few months will provide an indication of whether it will be worse or potentially better than that,” Mr Dimes said.

Deloitte Economics partner Chris Richardson most recently forecast Delta would deliver a $40bn blow to this year’s budget.

Mr Frydenberg said the commonwealth over recent months had paid out $13bn in Covid disaster payments to workers and businesses, and that the bill would eventually top $20bn.

With the Morrison government’s plan for budget repair linked to another bounce in economic activity once lockdowns end, the Treasurer again put pressure on state and territory leaders to ease restrictions as quickly as possible.

He made it clear that the decision to end emergency support once vaccination rates reached 80 per cent was aimed at spurring premiers and chief ministers to stick to the national plan, saying “of course states will need to factor in the economic supports that are available in making their decisions about the various domestic settings that they have”.

With hundreds of thousands of Australians stood down across NSW, Victoria and the ACT, job vacancies data released Thursday provided evidence that stood-down workers would quickly regain employment as businesses reopen.

Vacancies fell by 10 per cent in the three months to August, but remained 50 per cent higher than pre-pandemic levels, the seasonally adjusted figures from the Australian Bureau of Statistics showed.

All industries and states recorded more job vacancies than in early 2020.

NAB economist Taylor Nugent said “that supports our expectation that the current labour market impacts from lockdowns are likely to only delay, rather than derail progress towards maximum sustainable employment”.

Elsewhere, Reserve Bank of Australia data showed private sector credit grew by 0.6 per cent in August, to be 4.6 per cent up over the year.

Home and business lending both lifted by 0.6 per cent, with corporate lending up for four months in a row.

As credit growth continued to climb, ABS figures also showed the number of building approvals ­lifted by nearly 7 per cent in August, with a 3.5 per cent increase in the detached housing segment – snapping a three-month decline in the wake of the end of the hugely popular HomeBuilder grant.

While housing approvals are down 22 per cent from that recent peak, they are 24 per cent above a year earlier, and 42 per cent higher than in the same month in 2019.