Given that so much of how the coronavirus pandemic will unfold remains uncertain, budget assumptions are more critical than ever.
The economic statement delivered by the treasurer, Josh Frydenberg, on Tuesday assumes that a lot of things will go right, including that a vaccine will be available next year and that further outbreaks in Australia can be locally contained.
While a big economic rebound is forecast next year, Treasury officials imply this should be taken with a grain of salt, warning of “substantial uncertainty around the global and domestic outlook”.
Related: Federal budget: income tax cuts brought forward for 11 million Australians
Here is a rundown of the key numbers, predictions and assumptions from the 2020 federal budget 2020.
Unsurprisingly, there will be a big hit to the economy this year. What is surprising is the pace of the recovery as assumed by the Treasury.
The budget papers say real GDP is expected to fall by 3.75% in the 2020 calendar year. Remarkably, they also suggest real GDP could rebound by 4.25% next calendar year, pointing to “further easing of containment measures, improving business and consumer confidence and government support”.
Budgets normally look at the economic outlook by financial years – against that time period, real GDP went down by 0.2% in 2019-20 and is tipped to decline by 1.5% in 2020-21, before growing by 4.75% in 2021-22.
Despite outlining these figures, the Treasury notes the difficulty of forecasting economic movements at the current time, pointing to substantial uncertainty over factors including “the spread of the virus, future outbreaks, as well as timing and efficacy of vaccines and other medical treatments”.
It says there is also uncertainty about “the extent of any longer-lasting economic effects from the pandemic”, adding: “Uncertainty and the reintroduction of containment measures could substantially reduce activity.”
Movements in commodity prices can have a big impact on tax revenue and nominal GDP. This budget assumes iron ore prices decline to US$55 a tonne by the end of the June quarter 2021.
The key Covid-related assumptions
Related: Less Thatcher, more vanilla slice: Frydenberg’s 2020 Australian budget packs a sugar hit
Video: ‘No evidence’ tax cuts for top tier earners stimulate the economy (Sky News Australia)
These are some of the key assumptions behind the budget forecasts:
Localised outbreaks of Covid-19 “occur but are largely contained”.
A population-wide Australian Covid-19 vaccination program “is assumed to be fully in place by late 2021”, with social distancing restrictions continuing until a vaccine is fully available.
Restrictions in Victoria gradually lift over the rest of 2020 in line with the Victorian government’s easing roadmap.
State border restrictions are lifted by the end of 2020, “except for Western Australia, which is assumed to open from 1 April 2021”.
A gradual return of international students and permanent migrants “through the latter part of 2021”, although there would be “small, phased pilot programs beginning to return international students from late 2020”.
Inbound and outbound international travel is “expected to remain low through the latter part of 2021, after which a gradual recovery in international tourism is also assumed to occur”.
Net overseas migration is expected to fall from 154,000 people in 2019-20 to a negative 72,000 by the end of 2020-21, before gradually increasing to about 201,000 in 2023-24.
We knew the deficit would be high; now we know how high: $213.7bn in the 2020-21 financial year, the highest underlying cash deficit since the second world war. That equates to 11% as a share of the economy. Deficits will remain at elevated levels for years to come but are expected to ease to $112bn next financial year, followed by $87.9bn in 2022-23 and $66.9bn in 2023-24.
For the side of politics that has made a virtue of delivering a surplus, there isn’t one in sight: the Treasury suggests the deficit could still be as high as $50bn, or 1.6% of GDP, a decade from now – 2030-31. Last year’s budget claimed surpluses would build to 1% of GDP by 2026-27.
Related: Federal budget 2020: Coalition banks on $98bn injection to jolt Australia’s economy back to life
Debt will rise rapidly to help prop up the economy. Net debt stood at $491m last financial year and will increase to $703bn, or 36% of GDP, this financial year before peaking at $966bn or 44% of GDP in June 2024. Net debt will still be around 40% of the economy in the early 2030s. Gross debt, meanwhile, will hit $1.1tn in 2023-24.
The budget papers say not to worry about these borrowing levels: as a share of the economy they “remain sustainable and are low in comparison to most other advanced economies”.
The Treasury is predicting that unemployment will remain high for several years, but that it will peak at 8% in the December quarter of 2020. This is driven by “headwinds from ongoing international and domestic border closures, the continuation of social restrictions in Victoria, ongoing restructuring amongst businesses and the impact of increased participation”.
Adding to signs people will be feeling this recession for a long time, the budget papers suggest unemployment will be at 7.25% in 2020-21, 6.5% in 2021-22, 6% in 2022-23, and 5.5% in 2023-24. The Coalition recently revamped its fiscal strategy to say the government would have to keep spending big until after joblessness is comfortably back under 6%. (Last year’s budget had it hovering around 5%.)
For those who still have jobs, the outlook for wages remains bleak. Wages are forecast to grow by just 1.25% this financial year and 1.5% next financial year, before hitting 2% in 2022-23.
The budget says inflation is set to remain “weak by historical standards”. After declining by 0.3% in 2019-20, the consumer price index is set to rise by 1.75% in 2020-21 and 1.5% the following year. The Treasury says this means CPI probably won’t return to the bottom of the Reserve Bank’s target band of 2% to 3% until the end of the forward estimates in the budget period.
Related: How much will I get from the 2020 federal budget tax cuts? More if you earn over $100,000
Our place in the world
There are some eye-popping figures when it comes to Australia’s international engagement. For example, international visitor arrivals between April and July plummeted by more than 98% compared with the same period last year.
Overall, the budget tips exports to fall by 9% in 2020-21 and then grow by 2% in 2021-22. When we look specifically at services exports, these are expected to fall by 37% in 2020-21 and 4.5% in 2021-22 – driven by hits to tourism and a sluggish return to international education. But mining exports are set to grow by 0.5% in 2020-21 and 4% in 2021-22 because of “robust demand for iron ore from China” despite trade tensions, and a gradual recovery in other key export partners.
Imports are tipped to fall by 9.5% in 2020-21, after a drop of 7.1% the previous year, largely driven by fewer Australians travelling overseas, which counts as tourism imports.
Population growth is predicted to slow to its lowest rate in more than a century (0.2% this financial year). That shift is driven by plummeting net overseas migration and some families delaying having children because of the current uncertainty. On the latter point, the total fertility rate assumed to decline from 1.69 babies per woman in 2019-20 to 1.58 in 2021-22, before rising again to 1.69 in 2023-24. But there will be a gradual overall trend towards families having children later in life and fewer children when they do so, declining to 1.62 babies per woman in 2030-31 – contributing to a permanently lower rate of population growth in the medium term than assumed in the last mid-year budget update.