Global Macro Service > Research Briefings > Australia

Treasurer’s update gives some clarity on fiscal policy

Treasurer Josh Frydenburg has provided an Economic and Fiscal Update as a placeholder for the delayed 2020-21 budget. The statement was relatively light on new policy announcements but does lay out the scale of the Federal Government’s economic response to the pandemic. After years of steady progress toward a balanced budget, the deficit will blow out to nearly 10% of GDP in FY21. But given the scale of the impact of COVID-19, Australia’s low level of government debt, and record-low bond yields, we see this as prudent fiscal policy. The Treasury’s outlook for the economy is a little more bearish than ours, so we see some upside risk to their projections. The JobKeeper wage subsidy and JobSeeker income support payments will be scaled back in Q4 and again in Q1 2020. This will put some pressure on household incomes, but an extension is likely if the economic recovery stutters.

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