Coronavirus has brought the world to a standstill. Empty streets, deserted restaurants, deserted beaches and vacant store shelves, no one could have imagined that the world will have to go through a phase where they will have to stay indoors for several weeks.
With restrictions on people’s movement and lockdowns amid coronavirus, several businesses have been shut due to supply disruptions and travel bans, leaving millions of workers jobless. This has put a range of economic challenges for the government and putting the economy on the verge of entering a recession.
The Australian government has taken stimulus measures worth $320 billion till date that included $130 billion JobKeeper payment program to protect the jobs of Australians, support for households and businesses as well as early access to superannuation to support the economy financially.
ALSO READ: Storm Clouds on the Australian Economy
Josh Frydenberg, the Treasurer, is set to deliver a federal budget to explain how the fiscal and monetary measures taken to fight the coronavirus pandemic have given massive blows to nation’s finances and economy. The Treasurer will brief the Parliament on 12 May charting the disastrous effect of the coronavirus outbreak on the economy and the expenditure burden borne by the government to combat the pandemic.
The Treasurer and the Finance minister will be announcing an economic update on the future impact of the coronavirus pandemic in June that will assist in outlining reforms and building unanimity for the budget to be disclosed on 6 October.
After the mid-year update during early December, this will be the first official insight into the budget by Josh Frydenberg.
Budget in doldrums as revenue dry-up
The Federal budget was $10 billion short of Morrison’s target and reflected a deficit of $22.4 billion at the end of March due to actions taken to control the spread of the virus hit the economy.
While personal income tax collections were $1 billion behind schedule, company tax collections fell $4 billion short of the expected levels at the end of March.
The additional expenditure being born by the government to stabilise the economy is yet to flow to the official budget figures. The government’s spending including $130 billion JobKeeper wage subsidy is still due to be incorporated in the monthly budget numbers. But spending on social security and welfare is way ahead than the expected levels for March.
ALSO READ: 5 ways to spend government stimulus payments
The government had planned $5 billion surplus for FY20 with anticipation of budget showing a deficit of $12.5 billion at March-end, but the Finance Department figures showed a deficit of $22.4 billion.
He stated that eschewing growth-oriented fiscal policy to solve the deficit problem will keep unemployment at elevated levels and thus, hurt the economy. He added that RBA’s cash rate of 0.25% would hold until the end of 2023 while wages, household incomes and inflation are likely to remain affected due to high spare capacity in the labour market post COVID-19.
Opposition and Senators demand a statement
Jim Chalmers, Shadow Treasurer, stated that a speech was not a proper proxy for the economic and budget forecasts which should have been released on 12 May. He said that even at the time of the global financial crisis. The Labor treasurer at the time had released the mid-year budget update in early December before publishing the updated figures in February start showing that difficulties in giving down a full budget were not the justification to avoid the nation’s financial and economic condition.
A timely economic and budget update on the impact of the virus and the government’s response is vital to inform Australians about their economy.
Further, the parliamentary select committee on coronavirus or COVID 19 on 28 April, were to gather and hear from Treasury secretary (Australia), Dr Steven Kennedy along with other officials. The committee was set up by the Senate to inquire about the Australian government’s response to COVId-19 pandemic. The Senators have pressured the government to reveal the designing of their economic packages and the timing and eligibility rules for the wage subsidy programme undertaken by the government.
Senator committee chairman, Katy Gallagher stated that there had not been any real update on the budget since December and now till October. She wants to find out the success rate of the measures taken by the government.
The committee will also examine the government’s plan on letting people access their superannuation early. Following this, the DSS or Department of Social Services, NDIA or National Disability Insurance Agency along with Services Australia are next in the line to face the committee on 30 April.
RBA to release forecasts
RBA had stated in its April statement that coronavirus uncertainty poses a material near-term risk to the economic outlook of the country. It also signalled that the official cash rate is to remain at 0.25% for several years until the goals of full employment and inflation are met.
The Governor, Phillip Lowe has forecasted that the national output will shrink by 10% in the first half of 2020 while the unemployment rate will be around 10% by June.
After the crisis, the economic recovery is likely to take some time for business and industries to get back on track. Actions taken by banks combined with monetary and fiscal measures can soften the economic contraction in future, placing the economy well to recover.
The Treasurer, Frydenberg is expected to give an economic update on 3 June.