Frydenberg is hoping to fire up the economy from the depths of recession and have growth expanding at a speedy 4.75 percent in the next financial year, in what is being called the right budget for the times.
But the treasurer’s second budget comes at a cost, with the deficit ballooning to a record $213.7 billion in 2020/21— dwarfing the $85.3 billion in the past financial year—and with government debt exceeding $1 trillion by 2021/22.
“This is a heavy burden, but a necessary one to responsibly deal with the greatest challenge of our time,” Frydenberg said as he handed down the budget on Tuesday.
The budget added to a flurry of announcements over the past week offering initiatives to encourage businesses, particularly smaller ones, to hire young Australians, boost investment and offset some of their losses.
The much-speculated bringing forward of already legislated income tax cuts was confirmed on Tuesday, meaning more than 11 million taxpayers will get a tax cut backdated to July 1 this year.
The government is also retaining its low and middle income tax offset for an additional year.
BetaShares chief economist David Bassanese said it appeared to be a well designed budget that will provide a timely jolt to both household and corporate spending.
“The potential boost to both near-term consumer spending and business investment suggests upside risks to the government’s economic forecasts,” he said.
Australian Industry Group chief executive Innes Willox believes it is a budget that is right for the times.
“While this is a big-spending budget, it is spending up big on the areas required to turn around the economy and set it on the right path for the future,” Willox said.
But shadow treasurer Jim Chalmers believes there should be more “bang for the buck” with debt ballooning to $1 trillion.
After predicting a series of surpluses in his last year’s budget, the coronavirus pandemic has seen the economy sink into its first recession in 30 years and a sea of deficits are now forecast as far as the eye can see.
“No one expected the sort of storm of the sort of magnitude that Australia and the world has had to confront this year,” Finance Minister Mathias Cormann told reporters in the budget lock-up.
“But the hard work we have done as a nation during our first six years in government has put us in a strong position to do what was needed to be done when the pandemic and the COVID recession hit.”
Treasury has further trimmed back its forecast for the unemployment rate peak to eight percent by the December quarter this year, having previously predicted a top of around nine percent.
It had thought the jobless rate would exceed 10 percent when COVID-19 first hit Australia’s shores.
The government has shelved its pledge to pursue surpluses until the unemployment rate is comfortably below six percent.
The budget does not forecast an unemployment rate of 5.5 percent until 2023/24. It was 6.8 percent in August.
As such, wages growth is expected to remain subdued and below two percent until 2022/23.
Inflation, too, is expected to remain benign across the four-year budget estimates, and below the mid-point of the Reserve Bank of Australia’s two-three percent target band.