The Reserve Bank has estimated the bushfires would cut economic growth by 0.2 percentage points through the December and March quarters, while the drought would likely depress GDP by a quarter percentage point through all of 2020.
But it has yet to determine the financial fallout from the coronavirus. Some private-sector economists believe it could slash economic growth through the first three months of this year by up to half a percentage point.
Deloitte Access Economics believes the virus will cut about $1.8 billion from budget revenues this financial year, with a further but smaller hit in 2020-21.
Deloitte partner Chris Richardson said there would be an impact on the tourism and education sectors because of the virus, but the biggest hit would come through a drop in iron ore prices, which would flow through to the company tax take.
Former RBA board member and internationally respected economist Bob Gregory said because the coronavirus would have a depressing impact on the economy, it made sense for the government to spend more to support the economy.
He said the RBA had done enough to support the economy through ultra-low interest rates, and further cuts risked pump priming the property market and exacerbating wealth inequality across the country.
The government had to step up and stop relying on good luck to get the budget back into surplus.
“A lot of the government response, just listening to the Treasurer, is political and not economic. They have locked themselves into building a surplus and they don’t want to lose it,” he told The Sydney Morning Herald and The Age.
“But it is clear that their surplus plans for the future were really unsustainable unless they had really good luck. So if the coronavirus did not get them this year, something else would in the near future, namely lack of wage inflation.”
KPMG chief economist Brendan Rynne said the mid-year budget forecast was already optimistic given the issues facing the economy, with both revenue and expenditure taking a hit.
Monthly revenue and spending figures from the Finance Department showed the budget was $1.1 billion behind expectations and still deep in deficit. Company tax revenues were $516 million lower than forecast in the mid-year update, while personal tax collections were $379 million behind.
Dr Rynne said expenditures, before the worst of the bushfires and the advent of the coronavirus, were also tracking a little ahead of expectations. No money had been set aside for dealing with natural disasters but that would become a sizeable drain on the budget.
“It will be really tough to get a surplus given all the challenges,” he said.
“They have a buffer from iron ore prices but even they have come down sharply in the past week. Even the cyclone (Damien) has slowed down iron ore ships out of WA for a couple of days and that will have an impact.”
Senior ANZ economist Cherelle Murphy said if the budget continued its rate of under-estimation as evident in December, the $5 billion surplus would “clearly disappear”.
She said the government should drop its surplus target given the economic risks posed by the bushfires and coronavirus.
“This would be appropriate given the already-sluggish economy, anaemic monetary policy, and now these exogenous shocks which we don’t yet know the full extent of,” she said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.