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Budget deficit of $213.7bn expected in 2020–21

Adrian Flores
Adrian Flores
06 October 2020 1 minute readShare

BUDGET 2020: The federal government has announced it is expecting a budget deficit of $213.7 billion in the 2020–21 financial year as it primarily focuses on propping up a struggling economy through a range of stimulus measures.

The budget deficit is equivalent to 11 per cent of GDP. However, the budget paper noted that its position is expected to improve across the forward estimates to a deficit of $66.9 billion in 2023–24 and over the medium term to a deficit of $49.5 billion, equivalent to 1.6 per cent of GDP in 2030–31.

It expects gross debt to increase over the forward estimates before stabilising at around 55 per cent of GDP in the medium term.

Net debt is expected to peak at 43.8 per cent of GDP in the forward estimates and then fall to 39.6 per cent by the end of the medium term.

“This is a heavy burden, but a necessary one to responsibly deal with the greatest challenge of our time,” said Treasurer Josh Frydenberg.

“By comparison, Australia’s net debt as a share of the economy will peak at half of that in the United Kingdom, around a third of that in the United States and around a quarter of that in Japan today.”

The unemployment rate is forecast to reach 8 per cent in the December quarter 2020. The budget paper said the figure reflects headwinds from ongoing international and domestic border closures, the continuation of social restrictions in Victoria, ongoing restructuring among businesses and the impact of increased participation.

By the June quarter 2022, unemployment is expected to fall back to 6.5 per cent.

A revised economic and fiscal strategy

The federal government revealed its strategy will operate in two phases to provide flexibility in response to changing economic conditions.

The first phase would be the COVID-19 Economic Recovery Plan, seeking to promote employment, growth and business and consumer confidence, and will remain in place until the unemployment rate is comfortably below 6 per cent.

The second phase of the strategy will be focused on the government’s medium-term fiscal objectives.

The government said future adjustments in the fiscal stance will focus on ensuring the economic recovery is strong, and over the medium term on stabilising and then reducing gross and net debt as a share of GDP.

Budget deficit of $213.7bn expected in 2020–21
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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