Australia 2020: and now for some economic bad news

On 23 July 2020 Australian Treasurer and Liberal MP for Kooyong Josh Frydenberg delivered a national economic and fiscal update.

He dutifully posted an upbeat media release and published the official update documents.

Here is a preliminary takeaway from this update*:

• total federal government payments have increased by $58.0 billion in 2019-20 and increased by $187.5 billion over the two years to 2020-21. The net impact of policy decisions since the 2019-20 MYEFO has increased payments by $58.0 billion in 2019-20 and $113.7 billion in 2020-21.

• declines in taxation receipts were $31.7 billion in 2019-20 and are expected to be $63.9 billion in 2020-21;

• the underlying cash balance is expected to decrease to an $85.8 billion deficit in 2019-20 and an $184.5 billion deficit in 2020-21. This is a a deterioration of $281.4 billion over these two years since the 2019-20 MYEFO;

• as a percentage of GDP the underlying cash balance is expected to be -9.7 per cent in 2020-21;

• debt levels have increased significantly. Gross debt was $546 billion (28.1 per cent of GDP) at 30 June 2019 and $684.3 billion (34.4 per cent of GDP) at 30 June 2020 and is expected to be $851.9 billion (45.0 per cent of GDP) at 30 June 2021. With net debt at 30 June 2019 standing at 373.5 billion (19.2 per cent of GDP), expected to be $488.2 billion (24.6 per cent of GDP) at 30 June 2020 and increase to $677.1 billion (35.7 per cent of GDP) at 30 June 2021;

• on a calendar-year basis real GDP fell by 3.75 per cent;

• real GDP is forecast to have fallen sharply in the June quarter 2020 by 7 per cent;

• nominal GDP is expected to be -4.75 per cent in 2020-21;

• nationally 709,000 jobs were lost in the June quarter 2020;

• the unemployment rate in June 2020 was 7.4 per cent and is expected to peak at around 9.25 per cent in the December quarter 2020 and is forecast to be at 8.75 per cent in 2020-21;

• Treasury has predicted that immigration will fall to 31,000 individuals in 2020-21 which is likely to affect the national budget bottom line; and

• the Morrison Government's go-to remedy for the poor economic outlook is to (i) consider reducing the federal government's taxation income even further by est. $143 billion in personal income tax receipts over 10 years commencing in 2021-22, (ii) reduce welfare spending by further limiting eligibility and reducing payment levels for JobSeeker and JobKeeper recipients from 25 September 2020 with the Coronavirus Supplement due to be removed completely by 31 December 2020, (iii) incease the level of casual and insecure work via industrial relations 'reform', and (iv) encourage women to have more babies to compensate for the current moribund population growth rate.

NOTE

* The Economic and Fiscal Update June 2020 is affected by the economic impacts of the 2020 COVID-19 pandemic and to a lesser extent by the the impacts of the 2019-20 bushfires. 

Componding the situation is the high level of federal government borrowings which regularly occurred after 18 September 2013.

On 30 September 2013 the gross national debt stood at est. $220.67 billion and net national debt was $174.55 billion. At that time net national debt was in the vicinity of 13% of GDP. 

By 2 April 2019 the Abbott-Turnbull-Morrison Government had raised the gross national debt to $534.42 billion. That's more than double the national debt left by the previous Labor federal government. 

On 2 April 2019 Frydenberg was predicting that gross national debt would rise to $627.26 billion by end of June 2019 with net national debt coming in at $373.47 billion and net debt predicted to come in at 19.2% of GDP by end of June. 

By 30 June 2019 the federal government paid est. $18.15 billion in interest on this debt in the 2018-19 financial year. 

The bottom line is that before either the bushfires or the pandemic even began the Morrison Government gross national debt stood at $546 billion or 28.1 per cent of Australia's GDP and net debt stood at 373.5 billion or 19.2 per cent of GDP by 30 June 2019.

Therefore emergency national funding for bushfires and pandemic only accounts for est. 23.5 per cent of the current national debt.

As at 30 May the Morrison Government's total liabilities in 2020 ran to $1,324.95 billion against assets of $700.74 billion according to Australian Government General Government Sector Monthly Financial Statements May 2020.