Another time bomb left behind by a politically & fiscally incompetent current member of the World Wide Speakers Group and sometime Liberal MP for Cook, Scott John Morrison

 

Then Prime Minster Scott Morrison & Treasurer Josh Frydenberg - political mates and housemates before the Liberal-Nationals Coalition sank the ship of state. IMAGE: The Australian, 26 August 2020

 

On 5 July 2018 then Australian Treasurer & Liberal MP for Cook Scott Morrison unveiled his plan to overhaul the Goods & Services Tax (GST) state distribution scheme.

This involved changes which ‘would protect all taxpayers, update the grants commission process and deliver certainty to States and Territories. “This problem has been kicked down the road for too long and it is time we now got on and fixed it,” he said. “A fair and sustainable transition to a new equalisation standard will be ensured, through an additional, direct, and permanent Commonwealth boost to the pool of funds to be distributed among the States."

By 12 November 2018 the Australian Coalition Government now lead by Prime Minister Morrison introduced Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Bill 2018 which was duly passed by Parliament and became law on 29 November 2018.

On 25 February 2019 Treasurer John Frydenberg put his signature to this contentious document.

Thus a political and fiscal time bomb with a relatively long fuse was activated…...

The Age, 14 November 2022, p.3:

A deal put in place to placate Western Australia when its share of GST revenue was tumbling is on track to cost the nation's taxpayers 10 times more than forecast, helping drive up federal government debt and interest payments to record levels.

Originally pulled together by then-treasurer Scott Morrison in 2018 before being put through parliament by his successor, Josh Frydenberg, the deal that expected to cost $2.3 billion is now on track to cost more than $24 billion. [my yellow highlighting]

WA, which delivered four seats to Labor at the May election on the back of a 10.6 per cent swing, is vowing to fight to keep the arrangement, due to expire in 2026-27.

Morrison struck the deal at a time when WA's share of the tax pool had fallen to an all-time low of 30 cents for every dollar of GST raised within the state. Its iron ore royalties were effectively being redistributed among the other states and territories based on a Commonwealth Grants Commission formula that takes into account each state's revenue sources and expenses.

Under Morrison's deal, from 2022-23 WA must receive a minimum of 70 cents in the dollar before increasing to 75 cents in 2024-25. When the policy was put in place, it was expected iron ore prices would fall and WA's share of the GST pool would therefore rise. Instead, prices have soared.

The Morrison government ensured other states and territories wouldn't be worse off, which requires the top-up funding for the deal to come from outside the $82.5 billion GST pool.

It was originally forecast to cost federal taxpayers $2.3 billion over three years, including just $293 million in 2021-22, but the surge in iron ore prices has meant more top-ups and for longer.

The October budget revealed that last year, the deal cost $2.1 billion and is forecast to jump to $4.2 billion this financial year. By 2025-26, the cost of the entire deal is on track to reach $22.5 billion, with another $2-3 billion likely the year after that.

Throughout the entire period, the budget is expected to be in deficit, forcing the extra cash to be borrowed. In percentage terms, the blowout in cost is larger than the NDIS, aged care, health or defence.

Independent economist Chris Richardson said the deal had been ill-conceived from the beginning with the cost to be borne by future taxpayers.

He said all significant spending programs needed to be properly assessed, including the GST deal.

"Yes, the politics of it are difficult. But we have a whole host of other issues, like the NDIS, and the economics of them have to be dealt with," he said…….

The extra borrowing for the GST deal has contributed to the lift in gross debt, which on Friday reached a record $909.4 billion.

Treasurer Jim Chalmers said the cost of servicing the debt was getting more expensive and was the budget's fastest-growing expense. [my yellow highlighting]

"Since Premier Dominic Perrottet was appointed NSW treasurer in January 2017, he has presided over an unprecedented, $106 billion surge in taxpayer debt" and "has been systematically misleading" NSW voters about how he created this multi-billion dollar debt mountain

What the Premier is telling the people of New South Wales

We have transformed our state - and we will keep transforming it.

We are going to build our way forward.#SMHInfrastructure

— Dom Perrottet (@Dom_Perrottet) May 31, 2022

Another perspective on the "transformation of our state" 

From the pen of Financial Review contributing editor, Christopher Joye, @cjoye, Portfolio Manager & Chief Investment Officer at Coolabah Capital…...

Live Wire, 25 June 2022:

In the AFR I write that after 12 years of Liberal leadership, encompassing four premiers and four treasurers, NSW is sadly degenerating into one of the worst run states in Australia.

Since Premier Dominic Perrottet was appointed NSW treasurer in January 2017, he has presided over an unprecedented, $106 billion surge in taxpayer debt. That means Perrottet and his fierce internal rival, Treasurer Matt Kean, will have saddled NSW residents with $13,000 of extra debt per person. One day, that debt has to be repaid.

If the annual interest rates on this debt converge to current levels around 4.2 per cent, NSW taxpayers will be paying almost $7 billion a year in interest alone. Put differently, NSW residents will be spending the equivalent of seven new hospitals each year in interest.

It is ironic that supposedly imprudent Labor leaders are running rings around NSW, with resource-rich states like Western Australia and Queensland reporting budget surpluses, which has allowed them to slash debt issuance as the economy rebounds post pandemic. Even Victoria is starting to look more fiscally conservative. In the coming financial year, NSW will issue twice as much debt as Queensland, one-third more than Victoria, and about six times more than Western Australia. It is also more than quadrupling South Australia’s debt supply.

In a desperate attempt to cling to power, Treasurer Matt Kean has blown a $7.1 billion improvement in NSW's budget with $8.8 billion in new spending next financial year alone. This means that NSW will issue almost $10 billion more debt in the 2023 financial year than it did in 2022 when the budget was smashed by COVID-19. Perrottet and Kean are literally stealing from future generations to bribe the current one to allow them to remain in power.

While some of this debt was unavoidable due to the pandemic, Perrottet’s government increasingly resembles a degenerate gambler, addicted to spending money they don't have.

As a lender to the state, my worry is that that this tale of mismanagement gets worse. It turns out that Perrottet’s government has been systematically misleading taxpayers. The 39 year old Premier promotes himself as the great "asset recycler". Perrottet claims he is selling taxpayer-owned infrastructure to invest this money in new infrastructure….

But this was untrue. Instead of funding new infrastructure, Perrottet took $7 billion of the $9.3 billion in WestConnex proceeds and put it in a speculative investment vehicle called the NSW Generations Fund (NGF). Technically, the money was actually allocated to a subsidiary fund inside the NGF called the Debt Retirement Fund.

Since 2018, not a single cent of the $7 billion has been used to pay for infrastructure. It has instead been gambled on stocks and illiquid junk bonds, amongst other risky assets. Amazingly, this has involved lending money to Russia ($75 million), Saudi Arabia ($45 million), China ($225 million), UAE ($15 million), Cayman Islands ($30 million) and Angola ($15 million).

Perrottet might have actually helped build President Vladimir Putin’s new palace rather than NSW roads, schools or hospitals. (After we expressly warned this was nuts last year, NSW has had to write-off $30 million of the money it lent to Russia.)…. [my yellow highlighting]

Yet in 2022, NSW taxpayer’s $7 billion still sits in the NGF. It is still invested in listed equities, private equity, and junk bonds. And it has lost money in 2022 (as it did in 2020) as markets have tumbled. In fact, since its 2018 inception, the NGF has now formally failed to meet its own performance benchmark of a return in excess of inflation plus 4.5 per cent.

The question is who benefits from this scheme? Who has a vested interest in it? Unsurprisingly, it is the folks punting the money. That is, TCorp. The NGF represents about 15 per cent of TCorp’s assets. Former Perpetual CEO David Deverall, who runs TCorp, has been desperate to turn it into a global asset manager, and aggressively grow its capital.

While TCorp blames NSW Treasury for the now-discarded plan for NSW to issue tens of billions in extra debt to enable TCorp to speculate on markets, the truth is that TCorp are the ones who directly benefit. Across TCorp’s 180 staff, the average compensation cost in 2021 was a staggering $323,000 per person. That is almost double the average pay of the RBA’s 1,300 plus employees.

The NGF is currently worth $15 billion, partly because it has been bolstered by the asinine decision to divert billions of NSW taxpayer royalties and income to it, and due to a debt-funded transfer of more than $2 billion to the NGF in 2020, despite the NSW budget being in record deficit.

This revenue had to be replaced with extra NSW debt, which explicitly contradicts the legislated objectives of the Debt Retirement Fund. These focus on three goals: maintaining NSW’s AAA rating, which Perrottet lost in 2020; reducing the cost of NSW borrowing, which has soared; and repaying NSW debt.

After widespread criticism last year, NSW suddenly stopped diverting taxpayer revenue to the NGF and then belatedly committed to using $11 billion from the sale of the second-half of WestConnex in 2021 to repay taxpayer debt.

Yet Perrottet and Treasurer Kean still refuse to invest the original $7 billion from the sale of the first half of WestConnex in 2018 into the infrastructure they promised. They also refuse to use this money, and the NGF’s remaining (partially debt-funded) $8 billion, to meet the Debt Retirement Fund’s legislated mission of repaying taxpayer debt.

We can quantify the cost of this madness: Perrottet and Kean would rather NSW taxpayers spend $630 million a year in extra interest on the $15 billion in new debt they will issue next year (but could have avoided) just to allow their TCorp pals to gamble this money on markets…..

Our interest in this matter is that as a fund manager, we lend money to all Australian states, including NSW. And we expect them to behave ethically from an ESG (specifically the “g” or governance) perspective. The huge ESG conflict of interest at the heart of the NGF—whereby NSW taxpayers have to pay $630 million a year in extra interest to allow TCorp to continue to punt their money—is unacceptable to all stakeholders.

Kean says he cares about ESG concerns. Time will tell if this is actually true.

Read the full article here.

So how does the Reserve Bank see household finances across Australia in April 2022?

 

Although global financial systems have held up during the COVID-19 global pandemic, by April 2022 the Russian invasion of Ukraine and subsequent risk of financial stress caused by sanctions had become a factor in the international financial equation. Thus far any risk for Australia's economy appears to be considered manageable.

However, with interest rates expected to begin to rise again by June 2022, real wages growth still in what has been an 8 year-long stagnation with no light on the horizon, home insurance rates predicted to rise by more than 10 per cent on the back of widespread flooding on the Australian east coast, a continuing shortage of affordable housing stock with overall housing supply also expected to significantly drop and, annual residential rental growth continuing to rise sharply, the next few years may not be as manageable for some households.

Here are excepts from the Reserve Bank’s assessment of household and business finances.

Reserve Bank of Australia, Financial Stability Review April 2022, Household and Business Finances:

The incidence of household financial stress is low and declining, but a small share of households are vulnerable to cash flow shocks …

The share of APRA-regulated lenders’ non-performing housing loans was just 0.9 per cent at the end of 2021 – lower than before the pandemic (see ‘Chapter 3: The Australian Financial System’). Almost all borrowers who have exited loan payment deferral arrangements available earlier in the pandemic are now up to date with their repayments. The recent strength in employment is likely to have offset the unwinding in fiscal policy support for most indebted households. For the small number of borrowers who are currently experiencing repayment difficulties, liaison with banks indicates that the vast majority had been experiencing problems prior to the pandemic, and that early indicators of financial stress in other borrowers (such as households reducing their prepayments) remain very low.

Households in flood-affected areas of New South Wales and Queensland are facing significant challenges. To alleviate near-term financial challenges, government disaster-relief payments and hardship assistance from lenders have been made available. Recent estimates suggest that the number of insurance claims is higher than following the 2011 Queensland floods and Cyclone Yasi; although, to date, the total value of claims has been lower as fewer homes require rebuilding. Banks direct exposures to the most heavily affected households are small relative to total lending.

More broadly, the small share of borrowers with low liquidity buffers are more likely than other borrowers to have their financial resilience tested if they experience an adverse shock to their incomes or expenses, including through higher inflation. The risks for households with low liquidity buffers are likely to be even higher for those whose payment buffers have been declining (as opposed to low and stable) and for those who also have high levels of debt. The Securitisation data indicate that, for owner-occupiers with variable-rate loans, the overall share of borrowers with a loan six or more times their income and a buffer of less than one month of minimum repayments has declined since the beginning of the pandemic, to just below 1 per cent (Graph 2.4). The share of owner-occupier variable-rate borrowers with low and declining buffers has decreased to around 2 per cent over the same period. Declines in the shares of both groups of vulnerable borrowers are partly due to lower interest rates.

Historically, renters have been more likely to experience financial stress than indebted owner-occupiers. According to the Household, Income and Labour Dynamics in Australia (HILDA) survey, around one-third of renters reported at least one instance of financial stress (such as being unable to pay a bill on time or heat their home) in 2020, compared to one-sixth of owner-occupiers (Graph 2.5). Although renters are unlikely to pose direct risks to the stability of the financial system (as they have less debt), financial stress for renters could translate to repayment difficulties for indebted landlords or pose indirect risks by constraining household consumption and so economic activity. Renters with a combination of low liquidity buffers prior to the pandemic (equivalent to less than one month of disposable income) and high housing cost burdens (rental payments equivalent to more than 30 per cent of disposable income) were much more likely to report financial stress than other households. Around 15 per cent of renters were vulnerable based on this metric in 2020.

Although the value of consumer debt has declined over recent years, there has been strong growth in households using buy now, pay later (BNPL) services. BNPL services are generally a form of short-term financing that allow consumers to pay for goods and services in instalments. It is estimated that the value of BNPL transactions increased by around 40 per cent over the year to the December quarter of 2021, and the total number of BNPL accounts was equivalent to around one-third of the adult population (although some people have more than one account). There have been some increases in the incidence of late payments on these products. However, the value of BNPL transactions remains relatively small compared to other forms of personal finance, with the value of domestic personal credit and charge card purchases on Australian issued cards around 15 times larger than BNPL transactions in the December quarter of 2021.

… including a small share of borrowers who could struggle to service their debts as a result of higher interest rates and/or inflation

….Around 60 per cent of all borrowers currently have variable-rate loans, with around two-thirds of these being owner-occupiers. Scenario analysis using information in the Securitisation dataset indicates that if variable mortgage rates were to increase by 200 basis points:

• just over 40 per cent of these borrowers made average monthly payments over the past year that would be large enough to cover the increase in required repayments (Graph 2.6)

• a further 20 per cent would face an increase in their repayments of no more than 20 per cent

• around 25 per cent of variable-rate owner-occupiers would see their repayments increase by more than 30 per cent of their current repayments; however, around half of these borrowers have accumulated excess payment buffers equivalent to one year’s worth of their current minimum repayments that could therefore help ease their transition to higher repayments

• the share of borrowers facing a debt servicing ratio greater than 30 per cent (a commonly used threshold for ‘high’ repayment burdens) would increase from around 10 per cent to just under 20 per cent.

One caveat is that households’ average monthly mortgage payments over the past year may have been larger than might reasonably be expected going forward, especially as previous spending patterns resume alongside the recovery in economic activity. It is difficult to draw inferences about the capacity of investors with variable-rate loans to make higher repayments, as they tend not to make excess mortgage payments (and other forms of saving are less visible in available data).

Most borrowers with fixed-rate loans are also likely to be able to handle the increases in their repayments when their fixed-rate terms expire. 

Many borrowers have taken advantage of very low interest rates on fixed-rate products in recent years; in late 2021, almost 40 per cent of outstanding housing lending had fixed interest rates – roughly double the share at the start of 2020. Around three-quarters of currently outstanding fixed-rate loans will expire by the end of 2023……

Read the full analysis here.

Ahead of the week's Budget 2022-23 announcements, a brief look at how the federal government remains afloat

Budget Papers 2022-23 are expected to be presented to the Australian Parliament this sitting week.

This budget - like all other Morrison budgets since 2016 - comes with a background of increasing public debt. This fourth Morrison-Frydenberg budget can be no different, whatever clever accounting tricks are employed.

Financial Review, excerpt, 9 February 2022:

Commonwealth budgets and mid-year reviews have been ramping up spending, right up to the last mid-year review in December. As a result, spending in 2023/24 is estimated to be $41 billion higher than when it was first estimated in 2020. This increase has little to do with the pandemic.

The fiscal outlook is further clouded by the approach of a federal election. In recent weeks, the Prime Minister has been out and about sprinkling more fiscal largesse, which sits uneasily with his Treasurer’s “lines in the sand”.

Australian Office of Financial Management, Annual Report 2020-21 Financial Statements excerpt, 25 October 2021:

The cost and risk of the debt portfolio is managed through debt issuance and (where appropriate) investment activities. Since early 2009, budget deficits have required debt issuance volumes that have exceeded those necessary to maintain liquidity in Treasury Bond and Treasury Bond futures markets, affording the AOFM with a greater level of flexibility in setting its issuance program. In recent years the AOFM has lengthened the duration of its Treasury Bond portfolio through longer term issuance as a means of reducing refinancing risk and the variability of debt servicing costs over time.

Australian Office of Financial Management, 2021-22 Issuance Program, 7 January 2022:

This notice provides updated details of planned issuance of Australian Government Securities by the Australian Office of Financial Management (AOFM) for the remainder of 2021-22.

At MYEFO the AOFM indicated planned Treasury Bond issuance of around $105 billion (of which $44.3 billion has been completed). Two tenders will be conducted most weeks. A new November 2033 Treasury Bond will be issued by syndication in the final quarter of 2021-22 (subject to market conditions).

Planned issuance of Treasury Indexed Bonds is $5-5.5 billion (of which $4.1 billion has been completed). Two tenders will be held most months.

Regular issuance of Treasury Notes will continue. Weekly issuance volumes will depend on the timing and size of government receipts and outlays and the AOFM’s assessment of its cash portfolio requirements.

Details of weekly transactions will be announced at midday on the preceding Friday.

As at 28 February 2022 the total of Commonwealth borrowings liability was $859,702,529,974 (calculated in Australian dollars). That is an eyewatering amount of billions in anyone's language.

Two Treasury Bond tenders and a Treasury Note tender with a combined value of $2.8 billion were announced on Friday, 25 March 2022.

The next tender for the issue of Treasury Indexed Bonds is planned to be held on Tuesday, 12 April 2022.

Commonwealth gross debt has been rising since the Global Financial Crisis, but in the last three and a half years as the country lurched though mega bushfires, pandemic, catastrophic flooding and a significant loss of export market share in China, the Morrison Government budget papers have been exercises in hopeful fiction. Next Tuesday night's budget papers might possibly be accompanied by glittering unicorns.

With the 2020-21 national budget deficit now standing at $134.2 billion Morrison & Frydenberg wield the financial razor – and it’s no surprise that COVID-19 support payments are first in line to be trimmed

 

The Final Budget Outcome 2020–21 was released on 30 September 2021 showing a general government sector 2020-21 budget underlying cash balance deficit of $134.2 billion and a net public debt of $592.2 billion which is 6.5% of Australia’s Gross Domestic Product (GDP) for the last financial year.

Given that Morrison & Co are positioning the Coalition for a second ‘presidential style’ federal election the immediate reaction was to fall back on a favourite Scott Morrison tactic as Treasurer and then Prime Minister – impose support payment cuts that would impact most heavily on low income individuals and households.

Australian Treasurer & Liberal MP for Kooyong Josh Frydenberg, media release, 29 September 2021:

COVID-19 Disaster Payment

Joint media release with

Senator the Hon Bridget McKenzie

Minister for Emergency Management and National Recovery and Resilience

Minister for Regionalisation, Regional Communications and Regional Education

The temporary COVID-19 Disaster Payment has supported around 2 million Australians with over $9 billion in payments made since it was announced in June this year.

Under the payment, eligible recipients have received $750 per week if they lost over 20 hours of work, $450 per week if they lost between 8 and 20 hours and $200 per week for those on income support payments who lost over 8 hours of work.

As part of our economic recovery plan, the temporary payment will begin to transition once a state or territory reaches 70 per cent full vaccination of its population (16 years and older) in line with the movement into Phase B of the National Plan agreed to at National Cabinet.

Once a state or territory reaches 70 per cent full vaccination, the automatic renewal of the temporary payment will end and individuals will have to reapply each week that a Commonwealth Hotspot remains in place to confirm their eligibility.

In line with the movement into Phase C of the National Plan, where a Commonwealth Hotspot remains in place and a state or territory reaches 80 per cent full vaccination of its population (16 years and older), the temporary payment will step down over a period of two weeks before ending.

In the first week after a state or territory has reached 80 per cent vaccination there will be a flat payment of $450 for those who have lost more than 8 hours of work, while those on income support will receive $100.

In the second week, the payment will be bought into line with JobSeeker at $320 for the week for those who have lost more than 8 hours of work, while the payment will end for those on income support.

For those who haven’t already returned to the workforce following the end of the temporary payment as the economy opens up, the social security system will support eligible individuals back into work.

The Government will also leave in place the Pandemic Leave Disaster Payment until 30 June 2022.

Since the start of the pandemic the Morrison Government has provided $291 billion in direct economic support to households and businesses. [my yellow highlighting]

Note

The Pandemic Leave Disaster Payment program provides financial support if you can't earn an income because you must self-isolate or quarantine, or are caring for someone with COVID-19.

Labor MLA for Lismore urges Berejiklian Government to consider taxi licence buyback scheme

Office of the NSW Labor MLA for Lismore, Janelle Saffin, media release, 7 April 2021:

Saffin goes into bat for Lismore’s hard-working taxi drivers

TOP RANK: Lismore MP Janelle Saffin with taxi owner/drivers, from left, Justin Stevenson, Gurdeep Singh, Richard Hunter and Vikram Singh following their recent meeting.

STATE Member for Lismore Janelle Saffin is going into bat for local hard-working taxi owner/drivers, once again calling on the NSW Government not to abandon them by allowing their taxi licences to be devalued until they are worthless.

Ms Saffin has written to NSW Transport Minister Andrew Constance and NSW Minister for Regional Transport and Roads, asking them to throw taxi owner/drivers a financial lifeline so they are not left high and dry when they retire from the industry.

“In Lismore, there are 19 owners of taxis in our local co-operative, all respected small business owners who work incredibly hard serving our community,” Ms Saffin said.

“They are facing financial stress as a result of the decreasing value of taxi licences in New South Wales. They are concerned about their future and feel like they are being abandoned by the NSW Government.

“They’re worried about the sharp drop in the value of their taxi plates, that the Government’s support schemes are not nearly enough and that current Government regulations are failing to deal with how ride sharing has impacted taxi drivers.”

The NSW Legislative Council Inquiry into the Operation of Point to Point Transport Act 2016 found that taxi licences have incurred a net loss of at least 80 per cent in value since 2015.

This inquiry recommended that the NSW Government establish a buyback scheme for the taxi licenses.

Ms Saffin said a buyback scheme could be paid for by the NSW Government’s $1-per-trip Passenger Service Levy, introduced in February 2018 to raise up to $250 million over five years towards an industry assistance package.

“I am strongly encouraging Ministers Constance and Toole to adopt the inquiry’s recommendation to give our taxi drivers financial security into the future,” Ms Saffin said.

“Our local taxi drivers have also expressed to me how they have gone into debt to initially purchase their taxi licences and now that they are so devalued, they are left with the debt over their heads.

“These are not wealthy people and we must act to avoid our taxi drivers being left high and dry.”

Since 2009, Lismore’s taxi drivers have completed over three million trips.

According to Ms Saffin, they provide outstanding community service to the elderly, people with a disability and many locals who don’t own a car and need transport.

The MP has offered to work with Ministers Constance and Tool to give taxi drivers a fair go.

Quote of the Week

”The numbers unveiled by Josh Frydenberg and Mathias Cormann are butt-clenchingly large: a deficit this financial year of at least $184.5 billion that will probably nudge $200 billion by the time of the October budget and its extra spending measures; gross debt that will go through the Morrison government's recently increased limit of $850 billion some time in 2021-22 with no idea how it will be paid down. Frydenberg likened the effort ahead to climbing a mountain. But this ain't no day-trip to Kosciuszko or even a planned assault on Everest. It's more Olympus Mons, the 25-kilometre high mountain on Mars.” [Senior economics correspondent Shane Wright in The Sydney Morning Herald, 24 July 2020,

p.6]

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.

Reserve Bank of Australia dumps emergency $14.7 billion into banking system and states intention to buy up Morrison Government debt, as financial system is stressed by COVID-19 pandemic

Reserve Bank of Australia, media release, 16 March 2020:

Statement by Philip Lowe, Governor

As Australia's financial system adjusts to the coronavirus (COVID-19), financial regulators and the Australian Government are working closely together to help ensure that Australia's financial markets continue to operate effectively and that credit is available to households and businesses. (Refer to earlier Council of Financial Regulators' (CFR) press release.) Australia's financial system is resilient and it is well placed to deal with the effects of the coronavirus. At the same time, trading liquidity has deteriorated in some markets. 

In response, the Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market, which is a key pricing benchmark for the Australian financial system. The Bank will also be conducting one-month and three-month repo operations in its daily market operations until further notice to provide liquidity to Australian financial markets. In addition the Bank will conduct longer term repo operations of six-months maturity or longer at least weekly, as long as market conditions warrant. The Reserve Bank and the AOFM are in close liaison in monitoring market conditions and supporting continued functioning of the market. 

The Bank will announce further policy measures to support the Australian economy on Thursday. 

Channel 9 News, 16 March 2020:

The Reserve Bank has pumped extra liquidity into the banking system, part of a package of measures aimed at ensuring business and households have access to credit as the coronavirus causes chaos in global financial markets.

The RBA used its daily money market operation to add $5.9 billion to the system through regular repurchase agreements, well above its original intention of $2.5 billion.

That followed an injection of $8.8 billion on Friday, which had left commercial banks with a hefty $10.7 billion of surplus cash held at the RBA.....