Deloitte Access Economics economist Chris Richardson is forecasting massive budget deficits over the next few years and a slump in economic growth as a result of the coronavirus pandemic.
In his respected Budget Monitor released on Monday, Richardson predicts a huge budget deficit of $142.1 billion for the 2019/20 financial year, dwarfing the modest $5 billion surplus that had been forecast by the government in December.
For 2020/21 the deficit remains a large $131.6 billion.
But Richardson says rapid budget repair would be “misguided”.
“The budgetary damage isn’t structural, but the damage to our economy and our jobs would be if we start raising taxes and cutting spending,” he says.
He expects average annual economic growth will be flat this financial year before tumbling six per cent in in 2020/21, with the unemployment rate lifting to 6.5 per cent and 8.5 per cent in these respective years.
The Australian Treasury has forecast an unemployment peak of 10 per cent in the June quarter.
Richardson said Australia’s defence against the coronavirus has been “world-leading’ but beating back the virus isn’t enough.
“The ‘mission accomplished’ signs can’t be put up until unemployment is back at five per cent. On our forecasts, that doesn’t happen until late 2024,” he said.
“Our nation will begin its recovery with unemployment high, the private sector scared, the Reserve Bank tapped out and prices for our key exports weak.”
He said that’s why there is a very strong case for federal and state governments accepting a further period of high deficits and championing a new round of much needed economic reforms.
He said for the first time governments will have to drive unemployment down without the help of the Reserve Bank because the central bank has already cut the cash rate as far as it is willing to go to just 0.25 per cent.
While Richardson usually releases the Monitor ahead of the May budget, this year Treasurer Josh Frydenberg won’t be handing down the 2020/21 budget until October because of the COVID-19 crisis.
However, Frydenberg will be giving a statement on the state of the economy when parliament sits on Tuesday.
KEY FORECASTS IN DELOITTE ACCESS ECONOMICS BUDGET MONITOR:
Budget position (government forecast in last December’s mid-year review) –
2019/20 – $143.1 billion deficit ($5 billion surplus).
2020/21 – $131.6 billion deficit ($6.1 billion surplus)
2021/22 – $51.6 billion deficit ($8.4 billion surplus)
2022/23 – $32.6 billion deficit ($4 billion surplus)
Year average GDP forecasts –
2019/20 – 0.0 per cent
2020/21 – minus 6.0 per cent
2021/22 – 6.1 per cent
2022/23 – 3.3 per cent.
Year average unemployment rate forecasts
2019/20 – 6.5 per cent
2020/21 – 8.5 per cent
2021/22 – 6.9 per cent
2022/23 – 5.9 per cent.
(Source – Deloitte Access Economics Budget Monitor)
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