Treasurer delivers ‘sobering’ economic update
Ignoring social distancing as coronavirus restrictions ease risks a $4 billion weekly hit to the Australian economy that would send more than 850,800 people back to the jobless queue.
A year ago Treasurer Josh Frydenberg forecast he would today announce Australia's budget was "back in black," but instead he has delivered a statement to parliament on the economic crisis caused by the COVID-19 pandemic.
Mr Frydenberg said Australia can claw back $9.4 billion in GDP a month and help 850,800 people return to work, if the country successfully follows all three steps of relaxing the coronavirus shutdown.
The treasurer's official statement did not include a deficit forecast for 2019/20, but Deloitte Access Economics has predicted a $143.1 billion black hole in the nation's finances due to the health crisis.
That figure is a drastic departure from the $5 billion surplus the federal government was predicting at the mid-year budget review in December.
Mr Frydenberg said the economic data during the pandemic had been "sobering".
"The IMF is forecasting the world economy to contract by 3 per cent this year," he said.
"In contrast, during the GFC the global economy shrank by just 0.1 per cent in 2009."
Mr Frydenberg said Treasury was forecasting Australia's GDP to fall by over 10 per cent in the June quarter, calling it "our biggest fall on record".
"At $50 billion, this is a loss equivalent to the total quarterly production of South Australia, Tasmania, the Northern Territory and the ACT," he said.
"Treasury is forecasting the unemployment rate to reach around 10 per cent or 1.4 million
unemployed in the June quarter."
Mr Frydenberg said household consumption and business and dwelling investment were all forecast to "fall sharply".
"The combination of social distancing, lower incomes, and increased uncertainty are weighing heavily on aggregate demand and flowing through to reduced cashflow," he said.
"Household consumption is expected to be around 16 per cent lower.
"Business investment is expected to be around 18 per cent lower, with falls concentrated in the non-mining sector.
"Dwelling investment is also expected to be around 18 per cent lower."
Mr Frydenberg acknowledged the huge debt burden caused by $320 billion in financial support measures for struggling businesses and Australians who lost their jobs.
"With $320 billion or 16.4 per cent of GDP in financial support, our focus is on getting the
country through the crisis and position the economy to recover on the other side," he said.
"This has only been possible because of the strength of our economic position when we entered the crisis.
"After inheriting a budget deficit of $48.5 billion, the budget was back in balance for the first time in 11 years.
"And despite the adverse economic impacts from the global trade tensions, fire, floods and drought, we were on track for the first surplus in 12 years."
Mr Frydenberg said Australia's ability to handle the crisis was a reminder of the "importance of a strong and stable financial position".
"The proven path for paying back debt is not through higher taxes, which curtails aspiration and investment, but by growing the economy through productivity-enhancing reforms," he said.
Mr Frydenberg said reopening the economy earlier than expected will have a positive impact on unemployment, but if the community fails to socially distance and a second wave of coronavirus cases forces a return to the lockdown rules as of May 8, Australia would lose $4 billion a week.
Nationally the first step of eased restrictions is expected to inject $3.1 billion per month into the economy, with increased demand in the retail sector driving a $970 million monthly increase in GDP alone.
The reopening of schools will contribute $730 million a month, while cafes and restaurants reopening with up to ten customers is estimated to tip in an extra $500 million.
Australia has withstood "fire, flood and drought" and tackled the coronavirus crisis with a "unity of purpose" showing the resilience and character of the nation.
"The coronavirus has created a one in a 100-year event," he said.
"A health and economic shock the likes of which the world has never seen.
"So many of our fellow Australians through no fault of their own are struggling and doing it tough."
Mr Frydenberg said the "Australian way of life" had been put on hold.
"Many of the things we take for granted - visiting grandparents, taking the kids to weekend sport, or having a beer, have been disrupted," he said.
Mr Frydenberg said the path out of the economic crisis would be guided by the "values and principles" of past Coalition reforms.
"Encouraging personal responsibility, maximising personal choice, rewarding effort, and risk taking, while ensuring a safety net which is underpinned by a sense of decency and fairness," he said.
"Unleashing the power of dynamic, innovative and open markets must be central to the recovery with the private sector leading job creation, not government."
Mr Frydenberg said at the start of the pandemic Australia was in a "race against time" to replenish personal protective equipment stocks, increase ICU capacity and secure ventilators.
"We provided additional funding to our scientists and our medical researchers who are participating in a global mission to find a vaccine," he said.
While on the "economic front" Mr Frydenberg said in less than three weeks the government announced three support packages that represented "the largest fiscal response in Australia's history".
"Over $25 billion of support has already flowed to households and businesses in recent weeks," he said.
"With more than $30 billion to flow in the next month.
"This is the largest and fastest injection of economic support Australia has ever seen.
"Given the level of uncertainty, our economic measures provide more than financial relief. They provide a psychological boost as well."
Labor's Treasury spokesman Jim Chalmers immediately attacked Mr Frydenberg's address, including by referencing the physical difficulty the Treasurer had delivering the statement after having a coughing fit.
"All we got today is a cut and paste of what the government has already said and what Australians already knew," Dr Chalmers said.
"If only the Treasurer had coughed up some detail or a plan.
"This was a missed opp for the government to bring people into its confidence," Mr Chalmers said.
It comes after a KPMG report found it will take nearly two years for Australia's economy to recover from the impact of the coronavirus lockdown.
The details report, obtained by The Australian, found the economy will not recuperate its losses until the September quarter of next year.
It will take two years for the hardest hit industries of hospitality, accommodation, air transport and retail trade to recover losses, the report found.
Other industries such as healthcare, public administration and civil engineering will get ahead by the end of this year.
Originally published as Treasurer delivers 'sobering' economic update