PBO predicts $800bn budget deficit

August 24 2020
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The fiscal impact of the COVID-19 pandemic is tipped to extend over until 2030, leaving Australia in an $800 billion hole, the Parliamentary Budget Office has stated.

With the October budget just around the corner, the Parliamentary Budget Office (PBO) has revealed that government net debt in 2029-30 could be between 14 and 24 per cent of GDP (up to $800 billion) higher than it would have been pre-COVID.

“The future economic and fiscal impact of the COVID-19 pandemic remains highly uncertain, and recent forecasts have had particularly short shelf lives due to the rapidly changing nature of the situation,” the PBO said. “It is clear, however, that the impact will be major and extend over the medium term.”

The debt will rise due to lower receipts from slower economic growth and the significant policy response through to 2021. The PBO’s new baseline scenario is also 4 per cent higher than its June outlook due to the impact of lower migration on Australia’s future population – but other than permanently lower price level, no other enduring economic impact from the downturn is factored into the scenarios.

KPMG has previously estimated that the fall in migration will cost Australia $117 billion by the 2030 budget.

“Any additional ongoing negative impact on economic growth, such as on workforce participation rates or productivity growth, could result in a further significant deterioration in fiscal aggregates,” the PBO said, adding that the government’s COVID policy responses are also assumed to be temporary.

Treasurer Josh Frydenberg’s “eye-watering” economic update warned that the budget deficit would rise to $85.8 billion in 2019-20 and $184.5 billion in 2020-21 prior to Victoria reimposing lockdown restrictions, which are now expected to cost the economy significantly more in lost productivity and lead to greater stimulus spending.

“Even since we put this update to government, things have deteriorated in a major state,” Treasury secretary Steven Kennedy told the Senate COVID committee, adding that the constraints imposed – including border restrictions in Queensland and continuing lockdowns in Victoria – will mean “growth will be lower, employment will be lower and unemployment will be higher”.

“People can lose confidence and have concerns about what they’re seeing unfolding, even in other parts of the country,” Mr Kennedy said. “The community having confidence in the virus being well managed will matter enormously for economic activity,” he said.

The Parliamentary Budget Office’s modelling assumes that Victoria’s restrictions are lifted in short order and that no other states go into lockdown.

About the author

Lachlan Maddock and Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Lachlan Maddock and Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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