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Federal budget bent, not broke: Deloitte
The COVID-19 pandemic will see Australia’s federal budget deficit reach $200 billion, but the federal government needs to continue to support the economy, new research has revealed.
Federal budget bent, not broke: Deloitte
The COVID-19 pandemic will see Australia’s federal budget deficit reach $200 billion, but the federal government needs to continue to support the economy, new research has revealed.
According to Deloitte Access Economics, Australia’s economic position is slightly better than previously forecast as the high price of iron ore supports the national economy.
It estimates the federal budget will see an underlying cash deficit of $85.7 billion for the 2019-20 financial year, $198.5 billion this financial year, $45.1 billion in 2021-22 and $25.6 billion in 2022-23.
Deloitte points out that despite enormous damage to the budget, it is probably not permanent.
“If our economy gets better, then the budget will, too,” Chris Richardson, partner, Deloitte Access Economics, said.
The report points to further government support with a new temporary JobKeeper wage subsidy, spending on infrastructure, social housing and providing higher welfare for the unemployed becoming priority.
The consulting firm has also indicated that the controversial stage 3 tax cuts should be brought forward to help with consumer spending and lift the economy.
Deloitte has urged the government to adopt a business investment allowance while questioning the rise in superannuation payments.
“There’s a debate worth having on this one: if the key to getting jobs back as fast as we can is seeing more spending in the economy, is this the best time to promote a policy that boosts saving at the expense of spending?” Mr Richardson questioned.
“Australia has high unemployment, interest rates that are as low as they can go, and families and businesses that aren’t likely to be spending at the pace needed to continue to see unemployment fall after the initial effect on joblessness of a reopening economy.
“Withdrawing government support by dropping proposed tax cuts would be downright dumb. The key policy question lies around changing from government emergency support as a defence against the virus to a fight against unemployment. That says the main near-term policy debate should be around what extra policy is needed – not what withdrawal of policy support is needed.”
Deloitte points out that despite the commentary, taxpayers of the top 1, top 5, top 10 and top 20 per cent will pay a higher share of personal tax than if there’d been no tax cuts, with that pain concentrated at the top end.
“Don’t forget that, compared with the rest of the OECD, Australia is more reliant on personal tax, and also has a high top marginal rate of tax that cuts in at relatively low levels of income.
“But stimulus is effective only if that money is then spent. So, the very fact that the top 1 per cent of taxpayers pay 17 per cent of all personal tax is a reason why personal tax cuts work less well as stimulus – as they are more likely to be saved,” Mr Richardson concluded.
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