Australia predicts Covid-19 to push deficit to $185bn

24 Jul 20

Australia’s budget deficit is expected to reach $185bn (£103bn) in the current financial year as the government battles against the health and economic crisis caused by coronavirus.

 

Treasurer Josh Frudenberg said that although public finances were in a relatively good state before the pandemic – 2019 saw the government set its first balanced budget in 11 years – the toll of Covid-19 was unavoidable.

“Australia and the world are now experiencing the most severe economic crisis since the great depression. What is primarily a health crisis has devastated economies worldwide,” he said.

He pointed to the fact that the global economy has contracted just once in the past 40 years – by 0.1% in 2009 – when the OECD projects a 6% contraction in 2020.

Australia has put in place “unprecedented economic support”, including $289bn in fiscal and balance sheet support, but real GDP is estimated to have fallen by 7% in the second quarter of the year.

This is expected to lead to a loss of $95.6bn in tax receipts, $63.9bn of which are in the current financial year.

Meanwhile, the government’s expenses have risen drastically: not least because unemployment is expected to reach 9.25% in the last quarter of the year.

Frydenberg said the 2019-20 deficit was $85.8bn, equal to 4.3% of GDP, and in 2020-21 he expects it to reach $184.5bn, or 9.7% of GDP.

“These deficits reveal the real cost to the budget of protecting lives and livelihoods as a result of the coronavirus,” he said, stressing that the government is committed to  investing in jobs, infrastructure and housing to see the economy through the crisis.

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