The ongoing financial impacts associated with the Coronavirus pandemic could force Australia’s underlying cash deficit to run into the hundreds of billions of dollars.
Speaking ahead of next week’s Federal Budget, Commonwealth Bank’s Head of Australian Economics, Gareth Aird, said the Government would likely – based on current estimates – announce an underlying cash deficit of $A220 billion. This marks a $A35 billion increase on the deficit projection included in the July Economic Fiscal Update.
“Back in March the Government took the decision to defer the originally scheduled May 2020/21 Budget to October due to the COVID-19 pandemic. Since then the Australian economy has been through an extraordinary period,” Mr Aird said.
In September, Australia entered its first recession in 29 years, with gross domestic product (GDP) in the June quarter down seven per cent - the largest contraction on record.
Mr Aird said the unique nature of this recession, coupled with the Government’s massive fiscal packages, mean the Commonwealth Budget has been hit hard. Of course, Australia isn’t an outlier in this regard.
“Big budget deficits are very much the dominant theme around the world right now,” he said.
“The budget balance should look a lot better in 2021/22. But it will still be deep in the red and won’t resemble anything remotely like the $A8.4 billion surplus projected in the 2019/20 Mid-Year Economic and Fiscal Outlook.
“Clearly we are shooting largely in the dark in forecasting the underlying cash deficit in 2021/22, but we wouldn’t be surprised to see the Government forecast a deficit in the ballpark of $110 billion.”