(Bloomberg) -- Australia’s budget deficit is set to widen from estimates two months ago due to Melbourne’s renewed lockdown, but will be somewhat mitigated by a resilient iron ore price, Deloitte Access Economics says.
The underlying cash deficit will be A$198.5 billion ($140.2 billion) in the 12 months through June 2021 versus the previous estimate of A$184.5 billion, Deloitte said Monday. July’s economic and fiscal update, which saw an extra A$15.6 billion spent on easier eligibility for the JobKeeper wage subsidy and another A$2 billion to extend telehealth, was released before Melbourne’s Stage 4 lockdowns.
“Yet it’s not all bad news,” said Chris Richardson, a Deloitte partner. “Treasury assumed iron ore prices would immediately nosedive, almost halving to $55 a ton ahead of Christmas. But they’ve actually gone up, trading at double those rates. And Treasury was very conservative in its other forecasts.”
Australia has been buffeted by lockdowns and state-border controls driven by the coronavirus pandemic, with the economy contracting by the most on record last quarter and sliding into its first recession in almost 30 years. An initial recovery, driven by early lifting of restrictions and reopening of the economy, was interrupted by a resurgence of the virus and renewed lockdown in Melbourne, the nation’s second-largest city.
Victoria is now gradually starting to unwind its measures.
The Oct. 6 budget is likely to “gradually change gear” from protecting old jobs toward creating new jobs, Deloitte said. It expects plenty of infrastructure stimulus that will inject cash into the economy and generate jobs, including the construction of social housing.
“Various leaks suggest that there’ll be elements of that agenda announced on budget night,” Richardson said. “And we especially like the possibility that wage subsidies will start to swing away from protecting old jobs toward creating new jobs.”
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