Today both the Federal and State treasurers gave detailed updates on their respective economic outlooks. Here are some of the major take-aways and thoughts from Master Builders Victoria on what these figures mean. Victoria is likely a more relevant summary for most, but the national update will also give some context around Federal stimulus programs.

 

Victoria Treasurer Tim Pallas’ economic update:

  • Real gross state product (GSP) expected to fall by 5.25 per cent, or $11.4 billion, in the 2020 calendar year with an estimated rebound of 6.25 per cent in real GSP growth in the 2021 calendar year.
  • Despite the stimulus measures to support the labour market, it is expected that unemployment in Victoria could rise to 9 per cent in the September 2020 quarter, with job losses peaking at around 200,000. However, it has been forecast that this will fall to 7 per cent by June 2021.
  • Taxation revenue and GST grants are expected to be around $2.5 billion lower in 2019-20 and around $6 billion lower in 2020-21.
  • The fall in revenue is a result of fiscal support measures such as tax concessions to support the economy, along with a reduction in property and payroll tax collections due to the fall in property sales and rising unemployment.
  • The combined shortfall in tax revenue, along with increased spending to support businesses and the community, has meant that a deficit of around $7.5 billion for 2019-20 is expected.
  • This shortfall in tax revenue highlights the importance of support for the housing market given it contributes over 45 per cent of the state’s total tax revenue, as well as support for businesses in hiring people.

The full update can be found here.

 

Federal Treasurer Josh Frydenburg’s update:

  • Largest budget deficit since World War II, reaching almost $86 billion in the last financial year (2019-20). Understandably, this is in contrast to the forecast of December 2019 whiuch predicted a $5 billion budget surplus.
  • Deficit is expected to grow further this financial year (2020-21), with forecasts showing that it will grow to more than $184 billion in 2020-21.
  • Real GDP is forecast to fall by 0.25 per cent in 2019-20 and by 2.5 per cent in 2020-21.
  • Fiscal support measures by the Federal government totaled $289 billion, or 14.6 per cent of GDP.
  • Fiscal support measures by the Federal government such as JobKeeper were estimated to have saved 700,000 jobs.
  • Regardless, the economic contraction is expected to have a significant effect on the labour market in which:
  • Unemployment is forecast to reach 8.75 per cent in 2020-21
  • Low wage growth – 1.25 per cent in 2020-21
  • Australia retains its Triple-A credit rating which will enable it to have room to stimulate the economy for programs like JobKeeper and HomeBuilder.
  • Despite the forecast numbers, there remains significant uncertainty about Australia’s economic recovery given the second wave of COVID-19 cases in Victoria, and the uncertainty associated with the recovery of the global economy.
  • We will advocate to the Federal Government to continue to provide fiscal stimulus to the economy in light of growing economic uncertainty.
  • We continue to support Federal Government’s plan over the next five years to introduce reforms into key areas of the economy like industrial relations and infrastructure spending, to boost business confidence and take Australia on to the road to recovery.

The full update can be found here

We will continue to provide further updates and analysis on the economic effects and movements as we move through COVID-19.