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Financial News: Australia To Log Biggest Deficit Since World War

Australia To Log Biggest Deficit Since World War II

07/23/2020 - 05:48:00 (RTTNews)

(RTTNews) - Australia is set to record its biggest budget deficit since the World War II as the government spurred spending to cushion the blow from the coronavirus pandemic.

In the latest economic and fiscal update, released Thursday, the Treasury said the underlying cash balance will be in a deficit of A$184.5 billion in the financial year ending June 2021 due to the unprecedented level of economic support coupled with declines in tax receipts.

The deficit for 2019-20 is projected to be A$85.8 billion, Treasurer Josh Frydenberg said.

According to the government estimate, tax receipts will decline by A$31.7 billion in 2019-20 and A$63.9 billion in 2020-21.

At the same time, payments variations, including in demand driven programs, increased by A$15.7 billion, predominantly as a result of the impact of the Covid-19 pandemic on the economy.

The government said the fiscal measures are estimated to have lowered the peak of the unemployment rate by around 5 percentage points.

Despite the measures taken to support the economy, real GDP is forecast to fall 2.5 percent in 2021 after falling by an estimated 3.75 percent in 2020.

The unemployment rate is forecast to peak at around 9.25 percent in the December quarter although labor market conditions are expected to strengthen beyond 2020.

Although debt level increased notably, Australia continues to have a low level of debt-to-GDP compared to other countries.

Net debt is expected to be A$488.2 billion or 24.6 percent of GDP at the end of June 2020 and increase to A$677.1 billion, or 35.7 percent of GDP at June 2021.

Today's fiscal update was a damp squib as the Treasurer didn't present fiscal forecasts beyond June 2021 and didn't unveil fresh fiscal support, Marcel Thieliant, an economist at Capital Economics, said.

As policymakers will probably unveil additional measures in the budget due on October 6, the deficit in 2020/21 may be even larger than the forecast of 9 percent of GDP, the economist noted. The shortfall should shrink over coming years and the surge in public debt is not expected to cause major problem.

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