(Bloomberg) -- Australia’s budget deficit will blow out to a post-War record amid a surge in spending to plug a virus-induced gaping economic hole and collapse in revenue.
The underlying cash balance will be a A$184.5 billion ($131.6 billion) shortfall in the 12 months through June 30, 2021, the government said in an economic and fiscal update released in Canberra Thursday. The deficit in the fiscal year ended last month was estimated at A$85.8 billion.
“These harsh numbers reflect the harsh reality we face. The economic outlook remains very uncertain. Recent events in Victoria are testament to this,” Treasurer Josh Frydenberg told reporters after the release. “These deficits reveal the real cost to the budget of protecting lives and livelihoods from the coronavirus.”
The government is making vast outlays to mitigate the impact of the virus. Having initially looked to bring it under control, Australia is now battling a spike in Victoria that has forced around 5 million people in the state capital back into lockdown. The impact on Victoria, which contributes about one-quarter of gross domestic product, is set to exacerbate the shock to the economy and nation’s finances.
Despite the burgeoning budget deficit, and net debt predicted to hit A$677.1 billion in 2020-21, at 35.7% of GDP, Australia’s balance sheet is comparable with developed world nations.
The Australian dollar was little changed 71.36 U.S. cents at 11.05 a.m. in Sydney. Yields on 10-year bonds were down 2 basis points at 0.87% while three-year yields traded unchanged 0.28%, compared with the central bank’s target of 0.25%.
The currency has climbed about 30% from its March low and overseas funds have shown a healthy appetite Australia’s debt, suggesting that despite the huge budget deficit, the nation is coping relatively well with the impact of the virus.
Other data in the report showed:
- Unemployment is expected to peak at 9.25% in the fourth quarter of this year
- GDP is forecast to contract 2.5% in 2020-21
- Inflation and wages are both seen rising 1.25% in fiscal 2021
Australia suffered its worst day of coronavirus infections on Wednesday, with Victoria recording 484 new cases and warning numbers could rise further. New South Wales recorded 16 new cases in the past 24 hours, and Queensland 1, pushing the national tally past 500 and breaking the previous record of 469 cases set on March 28 during the height of the first outbreak.
The government is attempting to buttress the economy as the Victoria outbreak prolongs state border closures and drags on activity. Prime Minister Scott Morrison announced Tuesday that the government will pump a further A$20 billion into supporting the jobs market as it extended a signature wage subsidy and additional benefits for the unemployed.
(Updates with Frydenberg in third paragraph, further details in eighth.)
©2020 Bloomberg L.P.