Australia has announced one of the biggest budget deficits in history with the books now $40 billion in the red.
Finance Minister Mathias Cormann revealed the stunning figure on Friday afternoon in the monthly budget update.
Before the COVID-19 pandemic hit the Prime Minister promised a “back in black” budget at the last election.
But the final figure for the full financial year could prove even worse.
Senator Cormann said the figures reflected billions of dollars in expenditure to fight the coronavirus and protect jobs.
“As a Government we committed to the fight against the virus and to building the economic bridge to the other side,” he said.
“The COVID-19 pandemic is having a negative impact on our Budget bottom line both because of the negative impact of this health crisis on economic parameters and the fiscal impact of the policy decisions required to support Australians through this period.
“The Government is helping to keep businesses in business, Australians in jobs and to support those who lost their job with $259 billion or 13.3 per cent of GDP announced in total economic support.”
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Senator Cormann said Australia’s success in flattening the curve had also improved the projected budget deficit, suggesting it could have been even worse.
“As a result the economic impact of the health crisis is less bad than we had feared when preparing for the worst,’” he said.
“The fiscal impact of our historically significant support measures is also temporary, limited to the 2019-20 and 2020-21 financial years and is not baking material structural burdens into the Budget bottom line beyond that period.
“Nevertheless, the April Monthly Financial Statements reflect both the impact of the current economic impact of the coronavirus pandemic on both revenue and payments as well as the fiscal impact of the additional economic support measures we have put in place since MYEFO 2019-20.”
The Morrison Government recently announced the projected cost of the JobKeeper scheme has been slashed from $130 billion to just $70 billion.
But tax revenues will also be reduced as a result of the downturn in the economy.
“The impact of the pandemic on government revenue as a result of related economic parameter variations also remains significant, with receipts nearly $20 billion lower than the 2019-20 MYEFO profile,” he said.
“The underlying cash balance for the financial year to 30 April 2020 is a deficit of $40 billion instead of a deficit to that point of $7.6 billion in the 2019-20 MYEFO profile.”
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The $40 billion deficit in July is not the biggest deficit in Australian history but it’s likely to end up there given the April figures only include a few weeks of JobKeeper payments.
The Rudd-Gillard government ran up bigger deficits during the global financial crisis, peaking at $54 billion in 2009-10.
The $40 billion deficit was announced just minutes after the Prime Minister concluded a lengthy press conference on Friday, ensuring he did not take any questions on the new figures.
Earlier, the Prime Minister rejected claims he was at odds with the Reserve Bank in relation to when to phase out JobKeeper.
Mr Morrison has recently suggested the economy needed to “get off the medication” of stimulus measures such as JobKeeper which runs out in September.
However, the Reserve Bank Governor Phil Lowe told parliament this week it would be “a mistake” to withdraw stimulus too early and raised the prospect that JobKeeper could be extended in a more targeted way.
Mr Morrison said he was not at odds with the RBA.
“There are many, many, many forms of support that the government is providing and we will target the best measures to do the job that we need it to do and that is to support people, staying in jobs, and getting back into jobs,” Mr Morrison said.
“That’s what’s the most important thing and what we’re focused on and our programs will support that.”
The Prime Minister said while the RBA didn’t have much room to move on interest rates, the government was ready to act.
“The Reserve Bank may have run out of ammo when it comes, largely to what they can do on cash rates, but the Commonwealth government in particular has certainly stepped into the breach and we’ve done so significantly,” Mr Morrison said.
But he hinted any extension of JobKeeper would be targeted, noting “that doesn’t mean that requires you to do it in every single measure that we currently have out there. We’ve got a lot of flexibility”.
Home Affairs Minister Peter Dutton also confirmed today the Government was “flexible” on the issue of extending JobSeeker.
“I think clearly the Government has shown we have been able to implement the JobKeeper, double the payment that was otherwise paid to people who are unemployed through the JobSeeker payment and we want businesses to recover,” Mr Dutton told Today.
“We want jobs to be at the centre of every decision we make.
“So I think we are flexible and we will look at the way in which we could help businesses and people get back to a normal way of life. But there is a way to go yet as we know.”