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Earlier today, Treasurer Josh Frydenberg gave his Ministerial Statement on the Economy to Parliament – a mini budget to replace the real deal that’s been delayed until October by the pandemic crisis.
And if a delayed budget wasn’t a giveaway of the troubles that lie ahead, the figures released today certainly do.
In his speech, the Treasurer stated:
“Household consumption and business and dwelling investment are all forecast by Treasury to fall sharply in the June quarter. The combination of social distancing, lower incomes and increased uncertainty are weighing heavily on aggregate demand and flowing through to reduced cash flow. Household consumption is expected to be around 16 per cent lower. Business investment is expected to be around 18 per cent lower with falls concentrated in the non-mining sector. Dwelling investment is also expected to be around 18 per cent lower.
Overall, the economic data has been sobering.”
This week’s release of Deloitte Access Economics’ Budget Monitor provides guidance on what these economic conditions may have meant for the budget had it been delivered at this time.
Overall, the budget is taking a series of staggering blows. We begin our economic recovery with unemployment high, the private sector scared, the Reserve Bank tapped out, and prices for our key exports weak.
Underpinning these forecasts is both an increase to expenditure and a decrease to revenue.
On the revenue front:
On the spending front:
We estimate the increases in spending and hits to revenues will result in a $143 billion underlying cash deficit this year, followed by $132 billion next year. Our estimates are $148 billion and $138 billion, respectively, worse than official estimates of cash balances in last year’s Mid-Year Economic and Fiscal Outlook (MYEFO).
These numbers are scary. But there are things we can do as a nation to help.
Australia needs to see a combination of ‘going hard’ (ongoing policy support) and ‘going smart’ (unlocking reform). On the latter front, if we want to give our newly unemployed the best chance of getting their livelihoods back, then we need to be the smart nation that we’ve so often talked about. That means championing a new round of bold economic reforms.
That will give businesses – big and small – a reason to take bigger bets on the future, unlocking more investment, and with it the potential for more job gains. If we want more growth, then it makes good sense to raise the economy’s growth potential.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.
Harry joined Deloitte Access Economics in January 2017 after completing a Bachelors of Arts and Commerce, with honours in Econometrics and Business Statistics from Monash University. Harry’s area of focus is data analytics and econometric modelling, having conducted a range of research surrounding mental health, prescription drug use, labour markets and ageing populations.