Budget badly bent, not broken: Deloitte

Deloitte Access Economics Partner Chris Richardson says the budget is
Deloitte Access Economics Partner Chris Richardson says the budget is "badly bent" but not broken.

Prominent economist Chris Richardson expects future budget deficits won't be as "scary" as what is about to be announced for this financial year.

Treasurer Josh Frydenberg will hand down his delayed 2020/21 budget on October 6.

Mr Richardson, a partner at Deloitte Access Economics, expects a deficit of $198.5 billion for 2020/21 in response to the coronavirus pandemic and subsequent recession, compared with the $184.5 billion the government had predicted in July.

His forecast does not take into account any policy changes.

"The budget has therefore taken enormous damage, but it probably isn't permanent damage," Mr Richardson said releasing his budget monitor on Monday.

"The budget is badly bent, but it's not broken."

He said the deterioration in the budget position from July to "just" $14 billion and despite the lockdown in Victoria and spending initiatives is because Treasury had been conservative in its jobs and inflation predictions.

Also Treasury had assumed iron ore prices would nosedive to $US55 a tonne, when they had actually gone up and were trading double that rate.

By 2021/22, Mr Richardson expects a deficit of $45 billion and then $26 billion in 2022/23 as emergency spending is phased out.

"The budget will still be running big deficits, but that will be because the economy is still weak," he says.

"That says we need to remain laser focused on economic repair. If our economy gets better, then the budget will too.

The government has signalled it may bring forward already legislated tax cuts as one measure in the budget.

Mr Richardson does not agree with the argument doing the rounds that the cuts would be unfair, but he always thought they were too big.

"They aren't as effective at creating jobs as some other programs. But if they are in addition to other stimulus measures, then you should welcome them with open arms," he said.

DELOITTE ACCESS ECONOMIC BUDGET FORECASTS:

2020/21 - $198.5 billion deficit vs $184.5 billion predicted Treasury in July.

2021/22 - $45.1 billion deficit vs $8.4 billion surplus predicted in Dec 2019.

2022/23 - $25.6 billion deficit vs $4 billion surplus predicted in Dec 2019.

GDP:

2020/21 - minus 2.3 per cent

2021/22 - plus 5.6 per cent

2022/23 - plus 5.3 per cent

UNEMPLOYMENT RATE:

2020/21 - 7.9 per cent

2021/22 - 8.0 per cent

2022/23 - 6.8 per cent

(Source- Deloitte Access Economics Budget Monitor)

Australian Associated Press