Chris Richardson, a Deloitte economist, believes that although Australia has almost a $200 hundred billion budget deficit it is in a better economic position than first thought after iron ore exports have done better than Treasury expected.
Richardson has predicted, in his budget monitor released on Sept. 28, that Federal Treasurer Josh Frydenberg will hand down a deficit of $198.5 billion—”just $14 billion worse than Treasury forecast” in July.
He also believes debt will continue to shrink to $45 billion in the 2020-21 budget, and to $25 billion in 2021-22 budget.
This means that although the budget is registering “enormous damage” it is protecting Australia from the worst of the COVID-19 recession, and probably isn’t permanently damaged, Richardson said.
“Our prosperity is being beautifully held together by lots of sticky-tape. JobKeeper and JobSeeker are the standouts, but a whole range of policies have swung into action to cushion our living standards,” he explained.
As a result, the budget is bent not broken, he said.
Richardson noted that the current temporary emergency policy measures can be corrected by a laser-focused economic recovery plan, saying: “All in all, that’s a pretty good outcome.”
Frydenberg responded to Richardson’s analysis positively, saying: “That is why our renewed fiscal strategy focuses on bringing hundreds of thousands of more Australians back to work which will underpin a stronger medium-term fiscal position.
“The Morrison government will continue to support Australians through COVID-19 and next week’s budget will focus on our economic recovery and creating jobs to secure Australia’s economic future.”
Labor finance spokesperson Katy Gallagher used Deloitte’s report to push for a permanently higher unemployment benefit and a business investment allowance “as suggested by Labor.”
“New spending needs to get bang for buck, protect jobs, create secure jobs, train and up-skill Australians and support families doing it tough,” she said.
While Richardson argues that government spending is key to Australia’s recovery, he advocates for “smart” and “strong” spending on job growth that will shrink debt.
“Taxpayer’s money is also doing a more effective job today than it’s ever done before. In ordinary times we would worry about the debt. Yet these aren’t ordinary times. And although the increases in debt are very large, the falls in interest rates are even larger. That’s a game-changer,” he pointed out.
Iron Ore Slows Economic Decline
Halting the economic decline has been the iron ore industry. Treasury’s forecasts had assumed that iron ore prices would drop immediately in the wake of the global lockdowns, halving the prices to US$55 a tonne ahead of Christmas.
However, this estimate did not take into account the inability of Brazil to provide iron ore thanks to the pandemic and China’s demand for the metal being resilient, both of which have pushed prices of iron ore upwards to US$130 (AU$184.5) a dry metric tonne.
The strong demand has come in the wake of the Chinese regime pumping hundreds of billions of dollars into its economy, much of which was focused on the infrastructure sector.
Currently, the iron ore industry is the first Australian commodity to break the $100 billion mark for its annual export value with Australian Mining reporting on July 27 that exports had reached $101.7 billion in the 2019-20 financial year.