Deloitte is now estimating a $143 billion underlying cash deficit this year, followed by $132 billion next year. The massive deficit stems primarily from increased government spending on the JobKeeper and JobSeeker programs, while national income is tipped to fall by $35 billion from 2019-20 MYEFO projections.
But while the budget will be “very close” to being structurally balanced in 2022-23 as stimulus spending is reduced, Deloitte is predicting a slow return to normal.
“Families and businesses have had body blows to their confidence, their income, and their wealth,” said Chris Richardson, partner at Deloitte Access Economics. “So, they’ll be more cautious about taking risks – which is why we forecast business investment to drop more than any other part of the economy.
“And the Reserve Bank is already pedal to the metal, meaning this is the first recession and recovery that you’ve lived through in which the RBA is essentially already out of ammo.”
With monetary policy essentially exhausted, and a burgeoning unemployment crisis likely on the other side of COVID-19, the government will have to make hard decisions about how it intends to drive the country’s recovery. Both JobKeeper and JobSeeker are timed initiatives, meaning large numbers of unemployed Australians could be left without the lifeline they’ve come to rely on in the middle of the worst recession since the Great Depression.
“The budget’s fight against the virus has to morph into a fight against unemployment,” Mr Richardson said. “That will need different policies. It means doing more still with federal and state budgets to drive job gains. That may, for example, mean we need scaled-down wage subsidies for a time in the hardest hit small businesses. And we need other job generators, such as infrastructure.”
That point was echoed by Opposition Leader Anthony Albanese, who said Australia should use the opportunity provided by COVID-19 to instigate structural reform rather than “snap back” to insecure work.
“We must build more permanent jobs, an industrial relations system that promotes co-operation, productivity improvements and shared benefits,” Mr Albanese said.
“A constrained fiscal position does mean difficult choices. But a reform agenda that doesn’t work for all Australians isn’t one we should pursue.”
