Australia records largest budget deficit since WWII, and it’s set to rise further

Australia has recorded its largest budget deficit since the Second World War, according to Treasurer Josh Frydenberg who delivered an economic update this morning. The country’s budget deficit sits at $85.8 billion for the 2019-20 financial year, and is set to rise to an eye-watering $184.5bn in 2020-21.

The treasurer said the economic crisis Australia is currently facing due to the ongoing Covid-19 pandemic is like nothing the country has seen for 100 years. As he unveiled the country’s bleak economic outlook, Frydenberg urged Australians to band together and claimed that Australia is in a better position than many other countries around the world.

“In December last year the finance minister and I stood together in this building and delivered the MYEFO,” Frydenberg told reporters in Canberra. “Today we stand here in a very different world. Australia and the world are now experiencing the most severe economic crisis since the Great Depression. What is primarily a health crisis has devastated the economy worldwide.”

As a direct result of Covid-19, more than 870,000 jobs were lost and more than 1 million Australians had their working hours slashed. This morning, the treasurer revealed that while the unemployment rate sat at 7.4 per cent in June, it is expected to peak at 9.25 per cent in the December quarter of this year, before dropping down to 8.75 per cent in 2020-21.

Tax receipts – including personal income, company tax and GST – have also plummeted due to the ongoing pandemic. The true cost of this reduction in tax receipts is $31.7bn in 2019-20 and $63.9bn in 2020-21. Meanwhile net debt is forecast to be $488.2bn at June 30, 2020, and is expected to come in at $677.1bn the following year.

“These are harsh numbers … for a harsh reality,” Frydenberg said. “The coronavirus has had a significant impact on the budget bottom line.”

Today’s announcement came after the government made the decision to delay the budget until October. The treasurer was joined by Finance Minister Mathias Cormann on Thursday morning, who echoed the treasurer’s calls for Australians to stick together through the troubling times still yet to come.

Cormann, who recently announced he is planning to retire from politics, said the coronavirus pandemic has had a “massive fiscal impact” on the country, which has resulted in the “challenging numbers” unveiled during this morning’s announcement. Wrapping up his speech, Cormann said: “We are in a better, stronger, more financially resilient position than just about any country in the world.”