A deficit of more than $200 billion for the current financial year is expected to be confirmed in Treasurer Josh Frydenberg's budget update on Thursday.Credit:Alex Ellinghausen
Westpac chief economist Bill Evans is expecting the deficit for 2021-22 to approach $150 billion,saying the government will have to support the economy as interest rates are already at record low levels.
"While these numbers might seem extreme and the[economic] statement may well take a more conservative approach,it is important that in the future fiscal policy will take the lead from monetary policy to lift the demand and reduce the unemployment rate,"he said.
"Bear in mind that on our forecasts the unemployment rate in mid-2022 will still be around 7 per cent,signalling clearly the case for further fiscal stimulus with monetary policy largely sidelined."
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Government debt has reached a record $719.4 billion,with another $2 billion in debt sold on Monday. At the mid-year update,the government was forecasting gross debt to fall to $474 billion by the end of the decade after 10 years of consistent budget surpluses.
ANZ senior economist Cherelle Murphy,who is tipping a deficit in 2019-20 of $110 billion,said the government risked making the budget situation worse if it sought to cut spending too early.
"The multibillion-dollar fiscal deficits and sharply higher debt that result are appropriate,given the size of the COVID-19 shock to the Australian economy,"she said.
"A small policy response or a sudden end to existing policies would result in higher unemployment and lower growth and,ultimately,most likely a worse fiscal position."
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