The deficit of $213.7bn for 2020/21 represents a deterioration of $219.7bn since the MYEFO last December when the government was forecasting a surplus of $6.1bn. That deterioration was made up of $59.9bn due to the downturn in the economy and the balance ($159.8bn) in new policy since last December. However only $41.4bn represents new policy since the last economic update on July 23. The bulk of the new policy component of the Budget ($118.4bn) was known at the time of the July 23 Economic Statement. Since July 23 the government has announced $15.6bn in the extension of the JobKeeper payment. Thus, on budget night, there were only new policies which will impact 2020/21 at $25.8bn (or around 1.3% of GDP). For 2021/22 the budget deteriorated by $120.4bn (relative to MYEFO), with the impact of the economic downturn estimated at $66.5bn and new policy measures of $53.9bn – of which $46.4bn has been announced since July 23.
There is always the prospect that a boost to confidence from the Budget may immediately boost spending. Westpac is not inclined to change their current above consensus forecast that the economy will grow by 4% in the second half of 2020, reflecting the reopening outside Victoria in both quarters and the expected positive moves in Victoria in the second half of the December quarter. Westpac’s early August forecast for that profile (+4%) was in stark contrast to the RBA (+1.3%) which also had a forecast of –3% in year average terms for 2020/21, close to Treasury's –2.5% forecast for the same period. Westpac’s equivalent forecast has been –1.3%.
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