Australia’s budget deficit hit almost $86 billion last financial year, the biggest blow to the bottom line since World War II, Treasurer Josh Frydenberg has revealed.
The deficit is projected to grow even further this financial year, with the Government forecasting a blowout of more than $184 billion in 2020-21.
The Government has delayed the budget until October and instead today delivered an economic and fiscal update, which revealed the depths of the economic destruction of the coronavirus.
Treasury is predicting the unemployment rate will be above 9 per cent by the end of this year.
“Our economy has taken a big hit and there are many challenges to confront,” Mr Frydenberg said.
In December last year, Mr Frydenberg was forecasting a $5 billion budget surplus in 2019-20.
But coronavirus spending measures, including the $86 billion JobKeeper wage subsidy, have instead taken debt to record levels.
“These deficits reveal the real cost to the budget of protecting lives and livelihoods as result of coronavirus,” the Treasurer said.
The Government expects net debt reached $488 billion at the end of June. It expects that will grow beyond $677 billion, equivalent to almost 36 per cent of gross domestic product, this financial year.
Gross debt was $684 billion at the end of 2019-20 and is tipped to be almost $852 billion in 2020-21.
If realised, gross debt would exceed Australia’s debt ceiling of $850 billion.
The Treasurer said the Government would revisit the debt ceiling in the budget because Australia was in a “very difficult and different time” and a new approach was needed.
The Government faces the prospect of needing decades to pay back the debt incurred during the pandemic.
But Mr Frydenberg refused to set a timeframe besides “a number of years”.
“We’re not putting a date on it, because we want to grow the economy,” he said. “What I can tell you is we’ll be doing everything to get people back into jobs and ultimately grow the economy.”
Income from tax fell $31.7 billion in 2019-20 and the Government expects a $63.9 billion decline this financial year.
“Yes, Australia finds itself in a very challenging fiscal position,” Finance Minister Mathias Cormann said.
“But we are in a better, stronger, more resilient position than almost any other country around the world.”
Mr Frydenberg said around 709,000 jobs were lost to coronavirus in the June quarter.
The official unemployment rate is at 7.4 per cent but that fails to account for people attached to jobs thanks to the Government’s JobKeeper wage subsidy, or people who have left the workforce.
The Government believes the effective unemployment is 11.3 per cent, down from more than 13 per cent in recent weeks. It expects the official and effective unemployment rates to converge in the months ahead.
But Mr Frydenberg conceded further restrictions and outbreaks would likely affect the forecasted 9.25 per cent unemployment rate by the end of the year.
He said the Government expected unemployment would be “at elevated levels” into early next year.
“Without the Government’s economic support, unemployment would have been five percentage points higher,” he said.
“So the Government’s actions have saved 700,000 jobs.”