This economic and fiscal update is the first since December’s Mid-Year Economic and Fiscal Outlook when budget surpluses looked just around the corner. Since then things have changed dramatically due to the hit from coronavirus and necessary support measures from the Government.
The key points are:
The Government expects the federal budget deficit to peak at a record $184.5bn this financial year. That’s around 9.7% of GDP, its highest since the end of WW2.
Ultimately, we expect it to be around $220bn as the Government unveils more stimulus & revenue recovers more slowly than projected by the Government.
The budget and associated debt blowout is unlikely to cause a major problem as public debt is relatively low, borrowing costs are very low, the Government is borrowing in $A’s & it’s not dependent on foreign capital. Letting the deficit rise is the right thing to do.
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