The major event in Australia this week will be Thursday’s 2020-21 mini-budget ahead of the full budget in October.
The usual annual budget announcement was deferred in May because of COVID-19 and this smaller version will include highly conditional forecasts, but and outline proposals for programs like JobKeeper and JobSeeker.
It will contain an estimate of the budget cost of support measures announced so far (which the AMP’s chief economist, Dr Shane Oliver believes will be we around $145 billion), plans for future support measures and budget projections for this financial year and next.
Dr. Oliver says he expects the statement to the Government to forecast GDP contracting by 0.5% for 2019-20 (June 30) and by -2% this financial year with very weak nominal growth ahead of a 5% rebound in 2021-22.
“This of course masks a sharp contraction in the June quarter but a forecast recovery thereafter around which there is much uncertainty flowing from the latest wave of coronavirus cases,” Dr. Oliver forecast.
The budget deficits of $95 billion for 2019-20, $223 billion (or 11% of GDP) for 2020-21 and $73 billion for 2021-22.
He pointed out that “the budget projections will come with much greater than usual uncertainty given the uncertainty around the recovery and the amount of fiscal stimulus ultimately needed to be delivered.”
The mini statement is expected to contain additional fiscal stimulus including an extended and revamped JobKeeper, some paring back of JobSeeker but to a level above the prior $40 a day, a likely bring forward of the 2022 tax cuts (at a cost of around $15 billion a year), more investment incentives and additional industry support measures (including the additional apprentice subsidies and JobTrainer as already announced last week).
“This additional support will have the effect of turning the fiscal cliff after September into a fiscal slope,” Dr. Oliver said.
Ahead of this, there are the minutes of the July board meeting of the RBA tomorrow, and a major speech from Governor, Philip Lowe on the labour market, and the public sector’s balance sheet. That will be an update of the central bank’s views of where the jobs market is headed and especially the jobless rate.
