Australia’s budget deficit will be $30bn lower than expected after a “red hot” economic recovery from COVID-19 that is outstripping expectations, one of the nation’s economists says.
Treasurer Josh Frydenberg will hand down the May 11 budget against a rosier-than-expected backdrop, with the budget boosted by unemployment recoveries and soaring iron ore prices.
Budget deficits will be nearly $100bn lower over the next four years than first predicted, Deloitte Access Economics’ Chris Richardson wrote in his half-yearly budget monitor.
“If our economy gets better, our budget will too. So it’s no surprise that our red-hot recovery is helping the budget get better,” he said.
“To be clear, the economy remains under a lot of pressure, but that pressure is much less than the official forecasts had factored in.”
The budget deficit in 2021-22 would be $30bn lower than Treasury estimates, Deloitte predicted.
“That drives beautiful momentum across all the key drivers of the tax take – jobs, profits and spending,” he said.
Mr Richardson said jobs were returning at a faster rate than first expected at the beginning of the pandemic.
Better-than-expected unemployment figures would add $17bn to the 2020-21 budget bottom line and then a further $3bn in 2021-22.
“That’s even more central to the economic outlook than usual because COVID’s economic pain has centred on jobs,” he said.
Mr Frydenberg last week announced the government would not undertake budget repair until the unemployment rate had dropped below 5 per cent, rather than 6 per cent as previously stated.
Mr Richardson described the new goal as the “fastest and smartest” way to repair the budget, warning going too early would risk harm to the economy.
The recovery is also underpinned by soaring iron ore prices and high export prices.
Fewer businesses going under also meant Australia would “dodge the bullet” of “gigantic hangovers for the tax take”, Mr Richardson said.
But Labor Treasury spokesman Jim Chalmers claimed the strong recovery had “nothing to do” with the federal government and was underpinned by things outside the federal government’s control.
“We’re talking about the difficult decisions taken by state governments to keep people safe, and we’re talking about extraordinary prices that we’re getting for our commodities,” he said.