This year’s federal budget bottom line has improved by $16 billion in the past 10 weeks, but the country still faces continuing deficits, higher unemployment, and rising debt due to the coronavirus pandemic.
In the mid-year economic and fiscal outlook, Treasurer Josh Frydenberg revealed that this year’s budget deficit is now on track to be $197.7 billion and $66 billion by 2023-24.
On October 6, when Mr. Frydenberg handed down the delayed budget, he forecast a 2020-21 budget deficit of $213.7 billion.
The improvement is due to higher iron ore prices (around $US157 a tonne for 62% Fe fines delivered to northern China), which has boosted company tax receipts on top of better than expected earnings from a wide range of retailers and allied companies (as we have seen recently with new updates from auto parts group, Bapcor, Nine Entertainment which is getting a lift from higher ad spending; a surge in profits at Beacon Lighting and Adairs, the fabric and homewares group).
The deficit has been cut as well by lower than expected unemployment levels (as we saw yesterday with better than expected November’s Labour Force report) which has reduced spending on JobSeeker and the JobKeeper wage subsidy programs.
The jobless rate is expected to peak at 7.5% in the March quarter of next year (from 6.8% in November) but will remain stubbornly high, falling to 6.25% in the June quarter 2022.
Real GDP is forecast to grow 4.5% in 2021, after a 2.5% fall in 2020.
The forecasts include the impacts of slower population growth due to international travel restrictions and the expectation a COVID-19 vaccine will be fully rolled out by the end of next year, both of which were considered as part of the October federal budget outlook.
Net debt is expected to reach $951.7 billion by mid-June 2024. That will be down from the previous target of around $1.01 trillion.
