Press conference statement
Parliament House, Canberra
The Hon Josh Frydenberg MP
Treasurer of the Commonwealth of Australia
24 July 2020
In December last year, the Finance Minister and I stood together in this building and delivered the Mid-Year Economic and Fiscal Outlook.
It followed the first balanced Budget in eleven years, the largest legislated tax cuts in more than twenty years and welfare dependency was at a thirty year low.
Australia’s economy was growing and jobs growth was strong.
Today we stand here in a very different world.
Australia and the world are now experiencing the most severe economic crisis since the Great Depression.
What is primarily a health crisis has devastated economies worldwide. In the last 40 years, the global economy has contracted only once.
That was when it contracted by just 0.1 per cent in 2009 during the GFC.
The OECD is now expecting that the global economy will contract by six per cent this year.
The IMF, the International Monetary Fund is expecting 157 economies to contract this year with unprecedented falls in many.
The United States is expected to contract by around eight per cent and the euro area by around 8¾ per cent.
The coronavirus crisis has led to unprecedented economic support, to the tune of around $11 trillion.
Here in Australia, the Morrison Government has deployed $289 billion in fiscal and balance sheet support, the equivalent of 14.6 per cent of GDP.
Our economic strength going into this crisis has given us the financial firepower to respond during this crisis.
The actions we have taken have saved lives and livelihoods.
Australia has performed better on the health and economic front than almost any other nation in the world.
The impact of the coronavirus has led to a significant decline in tax receipts and a large increase in Government payments.
This has driven a dramatic change in the Budget’s position.
These harsh numbers reflect the harsh reality we face.
The economic outlook remains very uncertain.
Recent events in Victoria are testament to this, a painful reminder how a setback in combating the virus can impact the speed and the trajectory of our national economic recovery.
In the economic numbers released today, Treasury are forecasting real GDP to have fallen by seven per cent in the June quarter, with household consumption, dwelling investment, business investment and exports all expected to fall as a result of the COVID crisis.
Real GDP is expected to fall 3 ¾ per cent in calendar year 2020, but grow by 2.5 per cent in calendar year 2021.
In financial year terms, real GDP is expected to have fallen by a quarter of a per cent in 2019/20 and 2.5 per cent in 2020/21.
During this crisis, fiscal support will be a primary contributor to GDP.
Treasury estimate that the fiscal support has increased the level of real GDP by three quarters of a per cent in 2019/20 and will increase the level of real GDP by 4 ¼ percent in 2020/21.
Treasury has based their assumptions on Victoria being in lockdown for 6 weeks from 9 July, after which restrictions are progressively eased.
Other states are assumed to be gradually opening up, in accordance with the plan agreed by the National Cabinet on 8 May.
One of the largest impacts of this crisis is its effect on the labour market.
Between March and May, 870,000 jobs were lost and more than one million Australians saw their working hours reduced, in many cases to zero.
These are mums and dads, sons and daughters, friends and colleagues.
And at 7.4 per cent in June, the official unemployment rate is expected to peak at around 9¼ per cent in the December quarter this year.
Without the Government’s economic support measures, unemployment would have peaked at five percentage points higher.
The Government’s economic measures have saved 700,000 jobs.
And as we move to the next phase of this crisis, our JobMaker plan will get Australians back into jobs.
As part of our JobMaker plan we have already announced a $2 billion JobTrainer skills package, an extension of our 50 per cent wage subsidy for apprentices and trainees and the creation of a national fund for job seekers to reskill and upskill, a Higher Education relief package that will subsidise short courses in critical areas like nursing, teaching and science to help Australians get back into work as quickly as possible.
We have also announced $2 billion for priority infrastructure shovel-ready projects to support local jobs and a HomeBuilder package that will support an additional $1.6 billion in dwelling investment in 2020 and 2021.
Deregulation and a more flexible industrial relations system, including the continuation of the temporary changes we have made in response to the crisis will be central to our plan for jobs.
The coronavirus has had a significant impact on the budget bottom line.
Our fiscal measures have been worth $164 billion, equivalent to around 8.3 per cent of GDP.
Of this, and this is a critically important point, 99 per cent of our spending is over the two financial years 2019/20 and 2020/21.
Our measures have been temporary, they’ve been targeted and they have helped maintain the structural integrity of the budget.
This includes the $86 billion JobKeeper program which is today supporting 3.5 million workers, or thirty per cent of the pre-COVID private sector workforce.
The $16.8 billion coronavirus supplement has also been important to cushion the blow for more than 2 million Australians who are on income support.
The Morrison Government has also delivered two cash payments of $750 for more than 3 million pensioners, a $31.9 billion cash flow boost for 760,000 small and medium sized businesses and $9.4 billion for additional health measures for personal protective equipment, expanded telehealth services and boosting Australia’s hospital and pathology capacity.
Every resource available to the Government has been marshalled to defend the nation against the coronavirus.
As a result of the coronavirus, tax receipts have been revised down by $95.6 billion of which $31.7 billion is in 2019/20 and $63.9 billion is in 2020/21.
Personal income tax, company tax and GST receipts are all down.
As a consequence of lower receipts and higher payments the deficit is estimated to be $85.8 billion or 4.3 per cent of GDP in 2019/20 and $184.5 billion or 9.7 per cent of GDP in 2020/21.
These deficits reveal the real cost to the Budget of protecting lives and livelihoods as a result of the coronavirus.
The pandemic has also led to a sharp increase in Australia’s Government debt.
Gross debt was $684.3 billion or 34.4 per cent of GDP at 30 June 2020 and is expected to be $851.9 billion or 45 per cent of GDP at 30 June 2021.
However, with a debt servicing cost of 0.8 per cent of GDP in 2019/20 owing to historically low interest rates, our debt burden remains manageable.
Net debt is expected to be $488.2 billion or 24.6 per cent of GDP at 30 June this year and is expected to be $677.1 billion or 35.7 per cent of GDP at 30 June next year.
Despite our increased debt levels, they remain lower than what many comparable nations went into this crisis with.
The average debt to GDP ratio for major advanced economies is now expected to exceed 100 per cent in 2020.
Australia’s strong fiscal position has seen our AAA credit rating reaffirmed by all three major credit rating agencies during this pandemic and we have been singled out by the IMF to be the only developed economy to have its economic outlook upgraded this calendar year.
Australia is experiencing a health and economic crisis like nothing we have seen in the last 100 years.
Tragically 128 Australians have lost their lives as a result of COVID-19. And as we stand here today more than 5 million of my fellow Victorians are in lockdown.
Our economy has taken a big hit and there are many challenges we confront.
We can see the mountain ahead and Australia begins the climb.
We must remain strong, we must draw strength from our resilience as a nation and a people.
And we will get through this and we will get through this together.