Australia is set to forecast a record budget deficit of around A$200 billion ($142.7 billion) for 2020/21 as the government ramps up spending to support the coronavirus-hit economy, with its balance sheet seen in the red for at least the next four years.
In the run up to the Oct. 6 budget, Treasurer Josh Frydenberg has flagged big budget shortfalls over the medium-term, with several economists predicting the deficit could more than double this financial year from the previous one.
Australia's A$2 trillion economy suffered its deepest slump on record in the June quarter as coronavirus curbs crippled business activity, and the government has sought to soften the blow this year with A$314 billion of fiscal stimulus.
"The key for the government will be not withdrawing this stimulus too quickly given the unknown length of this pandemic and a prolonged recovery ahead," said NAB economist Tapas Strickland.
Strickland is among several economists predicting a A$200 billion deficit for the current financial year ending June 2021, up from an estimated A$85.3 billion last year.
The budget is expected to include a tax break for companies and additional infrastructure spending, while the government is also expected to bring forward tax cuts slated for July 2022 to July 2021, local media reports said.
The government is also mulling a new wage subsidy scheme tied to employment, greater support for home building, health spending and possible stimulus payments for welfare recipients, the reports said.
The budget is seen as an opportunity for the government to set a reform agenda around training and education and industrial relations to help shape Australia's growth out of the pandemic, economists said.
"The lack of genuine structural reform has been an unfortunate feature of budgets of all political stripes in recent years," said Strickland.
Prime Minister Scott Morrison has repeatedly said this budget would be the most important since the World War Two.
"What you'll see in the budget is a vote of confidence in the Australian economy," Morrison told Channel 7 on Sunday.
($1 = 1.3998 Australian dollars)
(Reporting by Swati Pandey; Editing by Ana Nicolaci da Costa)
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