Page 15 - BOL Aug20 Edition

Five Things You Need To Know About

The Governments Economic Statement

Australia is living through the biggest economic and social but both supports will be less generous, and JobKeeper will be
disruption since the second world war. Today’s budget update more targeted. This means a cliff still looms in October, albeit with
provides a stark reminder of just how big the economic and a slightly less deadly drop off.
budgetary fallout really is.
Fiscal support will be $18 billion a month on average (10.7% of
If you don’t have the appetite to wade through the 180-page monthly GDP) until October, but this drops to $3 billion a month
economic statement, here are the five big takeaways. on average (1.9% of GDP) for the six months beyond. This will leave
a big hole in economic activity, unlikely to be entirely filled by the
1. The economy will be in the doldrums for a while yet private sector recovery.
Australian gross domestic product is expected to fall by 3.75% in
2020, before rebounding to grow by 2.5% in 2021, leaving GDP still 4. The government missed an opportunity to announce more
3% below pre-COVID levels mid next year. As bleak as today’s economic forecasts are, the lack of any new
fiscal stimulus announcements is even more striking.
The global outlook is bleaker.
The government has missed a golden opportunity to commit to
Global GDP is forecast to contract by 4.75 per cent in 2020, the new stimulus measures to support the recovery - something that
worst decline since the Great Depression in the 1930s, before most economists agree is needed.
rebounding to grow by 5% in 2021.
Last month Grattan Institute estimated that $70-$90 billion in
Australia’s official unemployment rate is now expected to rise from stimulus would be required over the next two years to bring
7.4% today to a peak of 9.25% by Christmas, as most firms move unemployment down to below 5% and get wages growing again.
off JobKeeper and many Australians who are without work start
looking again. Yet even this bleak set of numbers takes on a rosy Today’s forecasts of a slower economic recovery, and the prospect
hue against the backdrop of the worsening COVID-19 outbreaks of a worsening outbreak in Victoria, makes that stimulus even
in Victoria and NSW. Treasury assumes the lockdown in Victoria more urgent.
will last just six weeks and outbreaks in NSW will remain localised.
Neither outcome is assured, or even likely. Stimulus takes time to roll out. Waiting for the October budget
when we have already passed the cliff face means that money
Meanwhile renewed outbreaks across the United States, Europe, won’t hit the economy as fast as it needs to.
and much of Asia point to the difficulty of reopening our economy
safely while the virus remains active in the community. 5. Don’t panic
Despite the big headline deficits, now is not the time to panic
2. Red is the new black about higher debt.
The headline deficits of A$85.8 billion last financial year and $184.5
billion this financial year are indeed “eye-watering” as the treasurer This is a once-in-a-century shock and using the balance sheet to
says. cushion the blow, as the government has done, helps to ensure
the costs of this crisis are more evenly shared across society and
The turn-around from the $5 billion surplus expected in December over time.
is a stark reminder never to count your chickens before they hatch.
With interest rates at record lows, the interest burden is less than
But no one could have predicted a global pandemic. you might think.

The government has rightly spent big to support households and The Commonwealth government can borrow for 10 years at an
businesses through the crisis ($162 billion in 2019-20 and 2020- interest rate under 1%.
21). Shutdowns have hurt revenue too, with lower than expected
company tax and goods and services tax collections, and a big This means the additional $300 billion in net debt will increase net
drop in the forecast for personal income tax receipts because of interest payments by $3 billion a year, comfortably manageable
the jump in unemployment. within the current budget envelope.

Net debt is expected to reach 35.7% of GDP this financial year, the Indeed, interest repayments are expected to remain lower than
highest level since World War II. But it is worth remembering that after the 1980s and 1990s recessions.
debt reached more than 100% of GDP in the 1940s, and Australia’s
debt levels have held at remarkably low levels by international These debt levels are manageable over time in a growing economy.
standards since the 1970s, and remain relatively low even now. The bigger concern is that the government has not yet done
enough to get the economy back on track.
3. The fiscal cliff is still steep
Until this week, all of the government’s major crisis supports – Written by Danielle Wood, Chief executive officer, Grattan Institute;
including JobKeeper, the coronavirus supplement, and regulatory Brendan Coates, Program Director, Household Finances, Grattan
supports for businesses and households – were due to end Institute; Kate Griffiths, Fellow, Grattan Institute
abruptly in October, creating a fiscal cliff. This article is republished from The Conversation under a Creative Commons license. Read the
original article: https://bit.ly/3g3Qw2C
The government announced on Tuesday that it would extend the
coronavirus supplement to December and JobKeeper to March,
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