Australia’s gross debt is forecast to hit $851.9 billion largely as a result of COVID-19 and a range of pandemic-response policies, treasurer Josh Frydenberg and finance minister Mathias Cormann revealed on Thursday.
Speaking at the federal government’s awaited economic and fiscal update, Frydenberg unveiled a forecast $85.8b deficit in 2019-20 with a $184.5b deficit in 2020-21 — the largest deficit since World War II.
He said Australia has experienced a “health and economic crisis like nothing we have seen in the last 100 years”, and it would take many years to pay back the hefty debt.
“We’re not putting a date on it because we want to grow the economy, and what I can tell you is we will be doing everything we can to get people back into jobs and ultimately to grow the economy, but the pathway to growing the economy is through skills programs, infrastructure investment and tax reform,” he said.
The update detailed the pandemic’s impact on Australia’s finances as well as the various support measures provided to individuals, businesses, and a range of sectors over recent months, including the $85.7b JobKeeper scheme.
Net debt is expected to hit $488.2b (24.6% of GDP) at June 30 2020, and increase to $677.1b (35.7% of GDP) at June 30 2021. Real GDP is forecast to have fallen sharply in the June quarter by 7%, Frydenberg and Cormann noted.
“However, the easing of health restrictions in line with the health advice is expected to deliver an increase in economic activity from the September quarter and beyond,” they said in a statement.
“There are some positive early signs in the recovery with indicators suggesting that the unwinding of containment measures in the latter part of the June quarter has led to a noticeable recovery in activity and jobs. Household consumption is expected to lead the recovery with strong growth in the September quarter, while business and dwelling investment are expected to recover more gradually.”
Around 709,000 jobs were lost across the country in the June quarter, and the unemployment rate is forecast to peak at around 9.25% in the December quarter, the update noted, “although labour market conditions are expected to strengthen beyond 2020”.
Around $289b — the equivalent of 14.6 % of GDP — in economic support has been provided to workers, households and businesses, Frydenberg noted. Combined with declines in taxation receipts of $31.7b in 2019-20 and $63.9b in 2020-21, this has “significantly impacted the budget position”.
On a calendar-year basis, real GDP is predicted to grow by 2.5 % in 2021, after a fall of 3.75% in 2020.
Frydenberg and Cormann noted Australia has a low level of debt-to-GDP compared to other nations, with the latter stating:
“We find ourselves in a very challenging fiscal position but we need to keep things in perspective. We are in a better, stronger, more resilient position than most other countries around the world.”
The figures follow a Tuesday press conference where the government announced the JobKeeper wage subsidy and JobSeeker coronavirus supplement would continue past September — when they were originally scheduled to wrap up — but at lower rates.
The government will provide forecasts and projections over the forward estimates period and medium term in the 2020-21 Budget, to be delivered on October 6.