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Australia suffers its biggest budget deficit since World War Two

"Jose Alcala" (2020-07-27)


Australia will suffer its largest budget deficit since World War Two due to the coronavirus crisis which has crippled businesses and required extraordinary government spending.

Treasurer Josh Frydenberg will reveal the 'eye-watering' figure - expected to be about $200billion for this financial year - in an economic update on Thursday.

The budget deficit is the shortfall in the government's income compared to how much it spends.  

The figure is so high because the government has spent $164billion on propping up businesses and individuals with new policies including subsidising wages and zpravy boosting welfare.

The Australian economy continues to be hammered by COVID-19, particularly Melbourne.

Pictured: Greville Street in the inner city suburb of Prahran

A nurse makes her way towards the COVID-19 testing zone as cars queue at Bondi Beach on Wednesday

Nurse Michelle Gibbons conducts a COVID-19 swab test on a man at Bondi Beach on Wednesday

At the same time, tax receipts are down because companies are making less money during the economic downturn brought on by restrictions and lockdowns.  

Company tax receipts, which were $93billion in 2019, are expected to fall by more than $25billion over last financial year and this year combined.

The treasurer will also reveal that Melbourne's fresh lockdown - imposed for six weeks on July 8 - is estimated to cost the economy $3.3billion.  

Furthermore, business investment is forecast to fall by six per cent in 2019-20 and 12.5 per cent in 2020-21.

But mining investment will be positive for the first time in seven years, increasing by four per cent last financial year and 9.5 per cent this year.

It comes as iron ore exports tick up, with strong demand from China which imported 14 per cent more of the commodity in June compared to May. 

Shipments of iron ore to China from the major export hub of Port Hedland in Western Australia reached a record 46.2 million tons in June, up seven per cent from the previous month. 

A restaurant in a food court is closed with chairs placed on top of tables during Melbourne's lockdown

Mining investment will grow the first time in seven years, increasing by four per cent last financial year and 9.5 per cent this year as iron ore exports to China soar

A budget deficit of $200billion would represent around 10 per cent of GDP, the highest since World War Two spending took the deficit to about 25 per cent of GDP in 1945.

The figure is four times as big as the Rudd government's budget deficit of $55billion in 2009 after the global financial crisis.

Government debt is already at $720billion and ongoing deficits will see this figure grow significantly. 

However, the treasurer will say that the drastic support measures the government has taken have been 'necessary' to prevent more people losing their jobs.

In June almost one million people were officially unemployed - but this figure could have been almost twice as high at 1.7million without JobKeeper and other government support, he will say.

A couple wearing face masks walk through Melbourne.

which is under lockdown for six weeks

Barista Alex Pallas (left) serves a customer a coffe at Eeffoc Cafe in Prahran, Melbourne

Mr Frydenberg said: 'The COVID-19 pandemic is a once-in-a-century shock that is placing immense pressure on health systems and economies all around the world.

'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 cushions the blow for millions of Australians, and to keep businesses in business and keep Australians in jobs.'

Finance Minister Mathias Cormann has warned that there is more uncertainty ahead after Victoria suffered a record 484 cases of coronavirus on Wednesday and outbreaks in New South Wales continued to grow. 

'The economic and fiscal outlook remains highly uncertain given what is continuing to occur globally and in some parts of Australia,' he said.

It comes as JobKeeper is extended until March but two million Australians will lose access from September as the payment and the JobSeeker supplement are reduced by $300. 

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Scott Morrison announced the wage subsidy, which currently helps 3.5million Australians, will be reduced in phases as the economy recovers from coronavirus lockdowns.

The payment was due to end on September 27 but instead it will be decreased from $1,500 to $1,200-a-fortnight.

A lower rate of $750-a-fortnight will go to people who worked fewer than 20 hours a week in February, before coronavirus struck.   

The two-tiered system has been brought in because one in four casuals are earning more on JobKeeper than when they worked. 

From January 4, the payments will be reduced to $1,000-a-fortnight for full time staff and to $650-a-fortnight for those who worked fewer than 20 hours. 

The JobKeeper payment will be extended until March and an increased JobSeeker rate will last until December.

Pictured: The Prime Minister meeting businessmen on Monday

Fewer businesses will be eligible for JobKeeper as they must continue to prove a revenue decline of 30 per cent compared to before coronavirus. 

Many will not meet this threshold because business has picked up after lockdowns ended. 

This means that the number of people on Jobkeeper is expected to decline from 3.5million now to 1.4million between October and December, Treasurer Josh Frydenberg said today.

From January 1million people are expected to receive the payment. 

Australian Council of Trade Unions boss Sally McManus said she feared the lower rates would lead to mass sackings.

'Businesses will be getting less support from the government per worker so they may decide to cut numbers,' she said. 

As Melbourne approaches its third week of lockdown, residents are forced to wear masks

But Qantas CEO Alan Joyce said the extension until March meant he could keep on 15,000 employees who have been temporarily stood down. 

'The extension to JobKeeper until at least March is fantastic for our people and provides them with certainty.

Importantly, it will help ensure most of them stay employed with us and come back to work when flights resume,' he said. 

From September 24 the JobSeeker supplement will be reduced from $550 to $250, meaning the total benefit will be worth $800-a-fortnight instead of $1,100 in total. 

That level will last until December 31 and the Prime Minister expects some level of supplement to remain beyond that.