Iron ore and lower unemployment improves a still deep red budget
17th December 2020

This year’s federal budget bottom line has improved by $15.9 billion in the past 10 weeks, but Australians still face ongoing deficits and a mountain of debt due to the coronavirus pandemic.

Treasurer Josh Frydenberg on Thursday revealed in the mid-year economic and fiscal outlook that this year’s budget deficit is now on track to be $197.7 billion and $66 billion in 2023-24. On October 6, when Mr Frydenberg handed down the delayed budget, he forecast a deficit of $213.7 billion.

Treasurer Josh Frydenberg has revealed the budget is in better shape than predicted in the October budget.Credit:Alex Ellinghausen

The improvement is due to soaring iron ore prices, which has swelled company tax receipts, and lower-than-expected unemployment levels which has reduced expenditure on JobSeeker and the JobKeeper wage subsidy program.

The jobless rate is expected to peak at 7.5 per cent in the March quarter 2021 but will remain stubbornly high, falling to 6.25 per cent in the June quarter 2022.

Net debt is expected to reach $951.7 billion by mid-June 2024.

Mr Frydenberg said the nation was outperforming all advanced economies, but the recovery was “very much dependent” on the success of containing the virus.

“While a number of comparable nations are facing renewed virus outbreaks and new lockdowns, Australians are approaching Christmas with optimism and hope,” he said.

“The unemployment rate is expected to recover to pre-COVID levels in around four years,” Mr Frydenberg said, adding this was faster than the 1980s and 1990s recession.

The jobless rate is expected to drop to 5.25 per cent by mid-2024, which is similar to pre-COVID levels. Real GDP is forecast to grow 4.5 per cent in 2021, after a 2.5 per cent reduction in 2020.

The forecasts include the impacts of slower population growth due to international travel restrictions and the expectation a vaccine will be fully rolled out by the end of 2021, both of which were considered as part of the October federal budget outlook.

Mr Frydenberg warned there were downside risks to these predictions, noting trade tensions that limit Australia’s access to international export markets, and domestic economic uncertainty that could lead to higher household savings and lower consumption levels.

More to come

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