Government budgets can be both eye-watering and mind-numbing affairs. Even budget updates, like the Mid-Year Economic and Fiscal Outlook released yesterday, bring hundreds of pages of analysis, projections and data points. What really matters from such economic statements is the impact the decisions within them have on the lives of Australians now and into the future.
This latest budget update further demonstrates how recent budgets have served Australians well, prior to COVID-19, through the depths of the pandemic and in the recovery that is underway.
Australia entered the pandemic with a remarkable run of 28 years of consecutive economic growth, a record unrivalled by any other comparable economy. In the time since we came into government, this growth was accompanied by the creation of more than 1.5 million new jobs. This successful job creation was one of the most important achievements of our government, providing opportunities for Australians and helping to restore government finances to a position of strength and resilience.
It is easy to forget that just last year, as employment and workforce participation were hitting record highs in Australia, our political opponents were calling for more spending and stimulus. We showed restraint, arguing that budget health needed to be preserved for a rainy day. This year, the storms hit with a vengeance and every ounce of economic resilience was needed, including fiscal firepower.
As the international movement of people ground to a near halt and countries across the world entered various phases of lockdowns that continue for many, global economies took a battering. The size of the world’s economy is forecast to shrink by 4 per cent this year, wiping out economic activity worth two to three times the size of the entire Australian economy.
The global impacts, coupled with domestic health restrictions, pushed Australia into recession too. However, we are faring far better than the rest of the world. Our budget update now forecasts the Australian economy to be 2.5 per cent smaller in 2020, compared with far greater falls internationally and a marked improvement on the 3.75 per cent decline forecast in the October budget.
Our resilience has been underpinned by several factors. Successful management of the health crisis, starting with the difficult decision to close Australia’s international borders, has not only saved tens of thousands of Australian lives but has meant that domestic lockdowns have been shorter, sharper and of lesser impact than in many comparable countries.
The impact of restrictions has still been real though. Without the swift financial support provided by our government, the rate of business failures and job losses across Australia would have been dramatically higher, even alongside positive health outcomes. The budget update shows that our government will provide an estimated $251 billion as part of our economic recovery plan, with over $175 billion having already flowed to support Australian households and businesses.
The largest single measure remains JobKeeper, which for COVID distressed businesses essentially shifted a large degree of their payroll obligations onto taxpayers. Without JobKeeper the rates of redundancies would have been dramatically higher, not only hurting employees but with the costs of redundancies potentially tipping many businesses over the edge.
A highlight of the budget update must be the fact that fewer Australian businesses now need JobKeeper than previously estimated. While the saving to the budget of $11.2 billion is welcome, much more welcome is the fact that lower demand for JobKeeper indicates more businesses are in a more a financially secure position, with at least 600,000 fewer jobs dependent on a government lifeline than previously expected.
The improvements in JobKeeper are reflected in the latest jobs data and the improved employment outlook. Around 80 per cent of the 1.3 million Australians who lost their jobs or were stood down in April are back in work. 734,000 jobs have been created again over the last six months. Rather than peaking at 8 per cent, the unemployment rate is now forecast to peak at 7½ per cent.
Just as was the case pre-COVID, a stronger economy fuelling stronger employment outcomes results in an improvement to the budget position. Across the budget forward estimates deficits are forecast to be $24 billion less than previously anticipated, with the current financial year deficit now forecast to come in under $200 billion.
Some will argue that these improvements create more room for more spending elsewhere. They ignore the reality that, although budget improvements will occur as temporary pandemic related measures come to an end, deficits are expected to continue throughout the medium-term. Demands from Labor or elsewhere for even more spending right now show a failure to learn the most obvious lessons from the start of the pandemic, that wherever possible fiscal capability needs to be preserved for when it is really needed. That’s why our support measures and stimulus decisions to date have been temporary and targeted.
Australia’s economic recovery from the COVID recession is well underway but there is no room for complacency. Our budget outlined a JobMaker plan that focussed on backing Australian businesses to create real and sustainable Australian jobs, through incentives to invest faster in business growth, a bringing forward of tax cuts to uphold confidence and spending, as well as targeted government investment in key capabilities like skills, energy and manufacturing.
COVID should have taught us all to expect the unexpected. Australia is well placed for effective vaccine delivery to help our recovery and further protect the health and safety of Australians, but the complete global success of vaccines is not guaranteed. We face other risks, unrelated to COVID, like the trade and strategic uncertainties within our region. And we continue to guarantee the essential services that Australians rely on, delivering 10,000 extra home care places in this update to further support our ageing population.
As Australia’s new finance minister, I am acutely aware of the responsibility to help see Australia through this global crisis and to set us up for the future. The budget numbers will always tell a story. Pleasingly, for now, it is one of resilience, recovery and Australians getting back to work.