Mr Frydenberg said the government had delivered $164 billion in direct financial support to help the country through its darkest economic year in generations.
“Our announced measures, together with large declines in taxation receipts, has seen a hit to the bottom line, but this has been necessary in order to cushion the blow for millions of Australians, and to keep businesses in business and keep Australians in jobs,” he said.
Economists are expecting the deficit for 2019-20 to reach at least $90 billion while the current year’s deficit could top $200 billion.
The full extent of the deficit for 2020-21 is not likely to be known until the October budget with the government considering extra spending measures, including a lift in the base rate of JobSeeker, bringing forward already legislated tax cuts as well as new infrastructure projects.
Treasury believes mining investment grew by 4 per cent in 19-20, a little above the 1 per cent predicted in the mid-year budget update. But it has slightly downgraded its forecast for the current year, to 9 per cent from a prediction of 12 per cent in December.
The worst of the damage will come through personal income taxes, which account for almost half of the federal government’s total revenue. Unemployment, expected to reach 8 per cent in the September quarter and go higher by year’s end, and the lowest wages growth on record will punch holes worth tens of billions of dollars into the budget.
The outlook will not be quite as dire as Treasury and the government had expected when much of the country was in lockdown to keep the coronavirus outbreak under control.
The budget update will upgrade forecasts around household consumption and dwelling investment while an originally feared 10 per cent collapse in GDP through the June quarter has been averted.
But the reintroduction of restrictions in Victoria to deal with its latest virus outbreak is estimated to cut national GDP $3.3 billion or 0.75 percentage points in the September quarter.
The update will focus on the limited scope of extra spending by the government expected beyond the current financial year, with Mr Frydenberg to highlight the budget’s “structural integrity” was being maintained.
But that has raised concerns about a so-called “fiscal cliff” later this year when much of the government’s economic support ends.
Despite the extension of the JobKeeper wage subsidy and the coronavirus supplement, government spending to deal with the pandemic is expected to fall from about $110 billion in the September quarter to about $40 billion through the final three months of the year.
Shadow treasurer Jim Chalmers said the update, which will only give forecasts for last year and 2020-21, had to be more than a “marketing exercise”.
“We need to know how bad the government expects this recession to get, how high unemployment will be for how long, and how much extra debt has piled up in addition to the record debt which already existed before [the] crisis,” he said.
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Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.