Treasurer Josh Frydenberg has causally revealed the biggest deficit in Australian history, showing the true cost of the pandemic.
The budget deficit is an eye watering $85.3 billion in 2019-2020 or 4.3 percent of GDP.
“This is half a billion improvement from what was estimated in terms of the deficit, but a $93 billion deterioration forecast the end of the last year,” Frydenberg said.
It’s the biggest budget deficit in Australian history eclipsing Kevin Rudd’s $54.5 billion budget deficit during the global financial crisis.
Welfare payments soared by $57.7 billion higher than the 2019-20 MYEFO estimate as a result of measures like JobKeeper, the coronavirus Supplement, the CashFlow and other economic support payments.
Tax receipts tumbled by $33.1 billion as the economy was shutdown to stop the spread of the COVID-19 virus.
Traditionally, the budget deficit is closely guarded until budget night with journalists forced to sign non-disclosure clauses before entering a six-hour lock up on the grounds the information if market sensitive.
Faced with confirming the biggest budget deficit in Australian history, Frydenberg clearly decided a different approach was required.
The treasurer had forecasted a budget surplus in 2019-2020 of $4.1 billion. So that’s a $90 billion reversal into the red as a result of COVID-19.
Deloitte Access Economics’ Chris Richardson told news.com.au it’s all about managing expectations.
“There are a few things the government knows that everyone else doesn’t know so governments love to control the news,” Richardson Said.
The final budget outcome for the year is usually announced around this time of the year, it’s just that the federal budget doesn’t generally follow 11 days later.
“So, they are telling us the same time that we would usually be told, but not in the same way,” he said.
A big change on the government’s fiscal strategy was also announced by the Treasurer yesterday.
The government isn’t even going to say when the budget will be back in black, that’s how big the deficit is.
But the government also stressed that it was the right economic decision to support the economy and there’s also never been a better time to borrow money because interest rates are so low.
“It does reflect the economic circumstances we’re in, the budget in less than two weeks’ time will be the next stage of our JobMaker plan and by growing the economy, by getting more people into jobs, we’ll be able to repair the budget,” Frydenberg said.
Finance Minister Mathias Cormann conceded today the $85.3 billion deficit was “a challenging set of number”.
“Despite all the challenges, that we’re facing as a nation, and despite the challenging set of numbers we’re formally reporting today in this final budget outcome, Australia remains in a better, stronger more resilient position than just about any other country in the world,” Senator Cormann said.
In the daily charts of AUD/USD, the pair opened at 0.7043 early morning on Fiday, Asia session.
AUS/USD oscillated on Thursday in a 56-pip trading range only to close slightly lower. The price was supported at 0.70157 which the bulls have been eyeing out for days or weeks on end.
The AUD/USD pair inched up 0.14% to 0.7055.
On Monday next week, traders will determine the fate of the pair. Two things might happen, it may continue its bounce from this support level and thread higher, or breakdown from the support level further losing against USD.
Volatility on Friday seems on a halt and we may not see much action. Any confirmation of where the market will go will be determined next week Monday.
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