Economists have warned Australia’s economic decline “still looms” in October and the government’s announcement of the biggest budget deficit since World War II as is “stark reminder of how big the fallout really is” of COVID-19.
Australian workers face decades of debt and the nation has been hit with an $852 billion borrowing bomb from fighting the coronavirus crisis, it was reported on Thursday.
Treasurer Josh Frydenberg revealed the stunning cost of the pandemic in an economic update that shows Australia’s budget deficit will hit the $184 billion mark this financial year, in the biggest blowout since World War II.
The government’s estimated $5 billion December surplus had tanked to $85 billion deficit for the last financial year, figures the Treasurer called “eye-watering”.
According to a graph posted by the Grattan Institute’s CEO Danielle Wood, Australia risks hitting a fiscal cliff in October and called for the government to announce more stimulus measures to boost the economy.
According to the Grattan Institute, “the initial downturn is smaller than previously expected but the recovery is now forecast to be slower”.
Deloitte Access Economics partner Chris Richardson backed this up on Thursday, claiming the next few months “will be the lowest point in the Australian economy”.
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Changes to the government’s coronavirus support packages, including JobSeeker and JobKeeper which have become lifelines for businesses and individuals during the pandemic, were due to end in October which threatened to create the fiscal cliff.
Despite the government’s announcement on Tuesday to extend the JobKeeper program until March at a cost of $16 billion, there are conditions and smaller amounts of cash on offer.
“This means a cliff still looms in October, albeit with a slightly less deadly drop off,” Wood wrote in a piece for The Conversation.
“Fiscal support will be $18 billion a month on average (10.7 per cent of monthly GDP) until October, but this drops to $3 billion a month on average (1.9 per cent of GDP) for the six months beyond.
“This will leave a big hole in economic activity, unlikely to be entirely filled by the private sector recovery.”
Though InvestSMART’s Evan Lucas told Peter Stefanovic on Sky News that “without it we would be in an even bigger hole”.
Fellow economists agree.
“It’s been terrible, but we’ve had to spend that money, there’s been no alternative,” Mr Richardson told Nine News.
Despite fears over what will happen next for the country, Mr Richardson urged Australians not to see the figures as a “terrible thing”.
“Just remember this is the budget doing exactly what you want it to do in a crisis; protecting the pockets of families and businesses and keeping jobs going,” he said.
“If we weren’t running these enormous deficits, we would have less money today in the pockets of families and businesses.
“It’s unfortunate, but entirely necessary.”
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Treasurer Josh Frydenberg confirmed Thursday between March and May, 870,000 jobs were lost and more than one million Australians saw their working hours reduced, in many cases, to zero.
“The COVID-19 pandemic is a once-in-a-century shock that is placing immense pressure on health systems and economies all around the world,’’ Mr Frydenberg said.
Wood noted Australia’s official unemployment rate is expected to rise from 7.4 per cent today to a peak of 9.25 per cent by Christmas, as most firms move off JobKeeper and many Australians who are without work start looking again.
The government was criticised for failing to introduce stimulus measures to jump-start the economy before the cliff hits and said the change in measures to JobKeeper weren’t enough.
“The government has missed a golden opportunity to commit to new stimulus measures to support the recovery – something that most economists agree is needed,” The Conversation piece read.
The Grattan Institute estimated it would take at least $70-$90 billion annually over the next two years to force the unemployment rate to below 5 per cent.
“The forecasts of a slower economic recovery, and the prospect of a worsening outbreak in Victoria, makes that stimulus even more urgent.
“Stimulus takes time to roll out. Waiting for the October budget when we have already passed the cliff face means that money won’t hit the economy as fast as it needs to.”
Record low interest rates would ease debt levels over time, economists said, but “the bigger concern is that the government has not yet done enough to get the economy back on track”.
Ahead of the announcement Mr Frydenberg said Australians should prepare themselves for a shock as the true impact of the coronavirus pandemic is revealed.
“You will see eye watering numbers around debt and deficit,” Mr Frydenberg said.
“Numbers that Australians have never, ever seen before.
“That’s the harsh reality of this pandemic. The coronavirus has required the government to spend unprecedented amounts of money to support people in need.”
https://news.google.com/__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?oc=5
2020-07-23 15:14:02Z
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