Despite its “red hot recovery”, Australia will likely need to save in the order of $40 billion a year if it wants to get the budget back into balance in the face of weak growth and business spending.
While Australia is enjoying one of the sharpest recoveries in the world, the “smartest way” to repair the budget still means avoiding attempting to do that before unemployment is “comfortably under 5 per cent”, according to Deloitte Access Economics partner Chris Richardson.
“Attempting budget repair too early would risk hurting the economy – and therefore hurting the budget,” Mr Richardson said in Deloitte’s pre-budget report.
“The good news is that appears to be the way the government is thinking. The Treasurer, quite correctly, continues to emphasise ‘the best way to repair the budget is to repair the economy’… you should hope that happens: it would make good sense.”
But Mr Richardson warned that the budget still won’t be as healthy as it was pre-COVID for some years, with a prolonged sluggish wage and price growth “unlikely to be followed by a period of catch up” and weaker population growth and business investment meaning the Australian economy will still be smaller than previously forecast.
“Australians do need to realise that there’s an eventual bill to pay – it isn’t nearly as large as many seem to fear, but nor is it nothing. And the politics here are horrendous,” Mr Richardson said.
“If you’d like a yardstick, the last budget that tried to save a similar share of national income was in 2014, and it is widely seen as having torpedoed the fortunes of Tony Abbott and Joe Hockey.”
Treasurer Josh Frydenberg has already indicated that he will attempt to drive unemployment into the 4 per cent range before attempting to repair the budget, saying the Morrison government “won’t be undertaking any sharp pivots towards austerity”.
“For fiscal consolidation to be sustainable, it should rely on gradual changes that are made over time and that provide the foundation for a growing, thriving economy,” Mr Frydenberg said in a major pre-budget speech last week.