Fiscal overview

Budget Review 2020–21 Index

Phillip Hawkins

The bushfires and COVID-19 pandemic in 2020 have had a substantial impact on the Commonwealth Government’s fiscal position, with the Budget projected to remain in deficit for at least the next decade and government debt increasing substantially (albeit from relatively low starting points). 

These impacts to the Budget are being driven by a worsening economy, which fell into recession in 2019–20 primarily as a result of the COVID-19 pandemic and responses to it, including the shutting of businesses and closing of state and international borders. The pandemic has also reduced government tax receipts, including personal income tax receipts and company tax receipts which have been impacted by lower employment, average incomes and reduced corporate profitability. Further, the Australian Government has significantly increased payments through policy decisions such as providing economic stimulus and additional income support to households.

This brief summarises the key fiscal data and discusses the Government’s medium term fiscal strategy. It provides historical time-series data over a period of 20 to 30 years to place the current fiscal position into historical context. Longer term historical data and charts are available from the Historical Tables spreadsheet.

Underlying cash balance

The surplus or deficit is measured by the underlying cash balance (UCB), which is a measure of the difference between the receipts of the Australian Government (including tax and non-tax receipts) and the payments the Government makes on a cash accounting basis. The fiscal balance is broadly the equivalent measure on an accrual basis, measuring the difference between revenues and expenses (including net capital expenditures).

Figure 1: underlying cash balance

Line graph showing underlying cash balance

Sources: J Frydenberg (Treasurer) and M Cormann (Minister for Finance), Mid-year economic and fiscal outlook 2019–20; Australian Government, Budget strategy and outlook: budget paper no. 1: 2020-21, statement 11.

The Mid-year Economic and Fiscal Outlook 2019–20 (MYEFO) released in December 2019, before the start of the COVID-19 pandemic, estimated that the Budget would be in surplus in 2019–20 and over each year of the forward estimates. According to the 2020–21 Budget, however, the budget deficit was $85.3 billion in 2019–20 and is anticipated to remain in deficit across each year of the forward estimates (see Figure 1).

Figure 2: parameter variations and policy decisions

Line graph showing parameter variations and policy decisions

Sources: J Frydenberg (Treasurer), Economic and Fiscal Update July 2020; Australian Government, Budget strategy and outlook: budget paper no. 1: 2020-21, statement 11.

Figure 2 shows the change in the UCB as a result of both parameter variations and policy decisions. Parameter variations occur because of changes in the economy, or in the composition and size of the population, as well as the flow on effects on revenue and demand for Government payments and services. Policy decisions are explicit policy decisions taken by the Government.

  • Parameter variations since MYEFO reduced the UCB by $32.4 billion in 2019–20 and are expected to reduce the UCB by $59.9 billion in 2021–22 and $280.6 billion in total across the forward estimates period.
  • Policy decisions made by the Government since MYEFO reduced the UCB by $58.4 billion in 2019–20 and are expected to increase the Budget deficit by $159.8 billion in 2020–21, with the combined impact of policy decisions across the forward estimates reducing the UCB by a cumulative $233.2 billion.

Many of the significant and most costly policy decisions made by the Government are economic stimulus measures that are designed to be temporary to support the economy across 2019–20 and
2020–21. These significant expansionary fiscal policy decisions are expected to be removed over the forward estimates period to the extent that the policy decisions in 2023–24 are forecast to reduce the deficit by $2.6 billion.

As outlined in Table 1, among the largest policy decisions taken by the Government since the MYEFO are:

  • the introduction of the JobKeeper payment, which cost the budget $20.6 billion in 2019–20 and, combined with subsequent changes announced on 7 August 2020, is estimated to cost the budget $80.7 billion in 2020–21. The Government says that JobKeeper will end in March 2021, so this measure has no financial impact after 2020–21
  • temporary business cash flow boost payments for employers, which cost the budget $14.9 billion in 2019–20 and are expected to cost the budget $17.0 billion in 2020–21. The last quarter this support applies for is the December 2020, so this measure has no financial impact after 2020–21
  • the coronavirus supplement for income support recipients (such as JobSeeker, Parenting Payment, Youth Allowance and Austudy), which cost $5.9 billion in 2019–20 and is estimated to cost the budget $12.1 billion in 2020–21. This measure will end on 31 December 2020 and has no financial impact after 2020-21 and
  • bringing forward planned personal income tax cuts to 2020–21, which is expected to cost the budget $6.9 billion in 2020–21 and $16.9 billion in 2021–22. This measure is expected to have a positive financial impact of $5.7 billion in 2022–23 and $0.3 billion in 2023–24.

Table 1: selected large temporary economic support measures: $ billion

Measure 2019–20 2020–21 2021–22 2022–23 2023–24
Payments measures: economic          
JobKeeper payment –20.6 –80.7 - - -
Business cash flow boost –14.9 –17.0 - - -
Coronavirus supplement –5.9 –12.2 - - -
Economic support payments –5.6 –6.2 - - -
Receipts measures          
Bringing forward personal income tax cuts - –6.9 –16.9 5.7 0.3
Temporary full expensing of business capital expenditures - –1.5 –11.4 –18.1 4.3
Increasing and extending the instant asset write-off - –2.4 –0.8 1.5 0.8
Backing business investment - –1.5 –5.2 0.2 3.3

Source: Australian Government, Budget measures: budget paper no. 2: 2020–21.

Payments and receipts

Figure 3 shows that the increase in the Budget deficit in 2019–20 and over the forward estimates is primarily being driven by a substantial increase in Government payments, and consistent with the Government’s strategy in response to COVID-19, a substantial part of this increase is anticipated to be temporary. Receipts are expected to be lower across the forward estimates, but are relatively less affected over this period than payments.

  • Payments rose sharply from 24.5 per cent of GDP in 2018–19 to 27.7 per cent in 2019–20. They are expected to rise to a historically high level of 34.8 per cent of GDP in 2021–22. Reflecting that economic support due to the COVID-19 pandemic is anticipated to be temporary in nature, after 2020–21 payments are estimated to decrease to 26.9 per cent of GDP in 2023–24.
    • This increase in payments in the short term is being driven by increasing demand for income support payments (such as increased JobSeeker claimants as unemployment rises) coupled with temporary increases to the rate of these existing payments, as well as new temporary support payments such as JobKeeper and the coronavirus supplement.
  • Receipts were 24.9 per cent of GDP in 2018–19, but fell to 23.7 per cent of GDP in 2019–20. They are anticipated to be 23.8 per cent of GDP in 2020–21 and to fall to 22.5 per cent of GDP in 2021–22, before increasing to 23.9 per cent of GDP by the end of the forward estimates period.
    • While receipts are falling as a proportion of the economy, they are not expected to decline as far as a proportion of the economy as they did in the period following the global financial crisis, when they declined to 21.3 per cent of GDP in 2010–11.

Figure 3: payments and receipts

Line graph showing payments and receipts

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2020–21, statement 11.

Net debt and interest payments

Australian Government general government sector net debt is equal to the sum of deposits held, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid, and investments, loans and placements.

Figure 4 shows Australian Government net debt and net interest costs as a proportion of the economy. The Government has increased its borrowing and will continue to do so over the forward estimates period as a result of substantially increased deficits:

  • Net debt increased from$373.6 billion in 2018–19 (19.2 per cent of GDP) to $491.2 billion in
    2019–20 (24.8 per cent of GDP) and is expected to increase to $703.2 billion (36.1 per cent of GDP) in 2020–21. Net debt is expected to be $966.2 billion (a peak as a proportion of GDP, at 43.8 per cent) in 2023–24.
  • Despite increases in net and gross debt, the amount of interest paid on these debts is expected to stay relatively flat at around 0.8–0.9 per cent of GDP, reflecting historically low interest rates.
  • Gross debt measured as the total face value of Australian Government securities on issue increased from $542.0 billion (27.8 per cent of GDP) to $684.3 billion (34.5 per cent of GDP) in 2019–20. It is expected to increase to $872.0 billion in 2020–21 (44.8 per cent of GDP), and to $1,138.0 billion in 2023–24 (51.6 per cent of GDP).

Figure 4: net debt and net interest payments

Graph showing net debt and net interest payments

Source: Australian Government, Budget strategy and outlook: budget paper no. 1: 2020–21, statement 11.

Medium-term fiscal outlook

In the 2019–20 Budget the Government set out a medium-term strategy to achieve budget surpluses, on average, over the economic cycle and stated an intention to eliminate the Commonwealth’s net debt by 2029–30.

However, as a result of the COVID-19 pandemic, the Government has substantially revised its stated medium term fiscal strategy and projections in the 2020–21 Budget.

  • Medium term projections now outline budget deficits until at least 2030‑31, with a deficit of 1.6 per cent of GDP projected for 2030–31.
  • Payments, which in the 2019–20 Budget were projected to fall substantially to just over 23.6 per cent of GDP in the medium term, are now projected to be a larger share of the economy at around 26.2 per cent of GDP over the same period.
  • Receipts, which were anticipated to increase to just over 25.5 per cent of GDP, are now anticipated to be lower over the medium term at around 24.5 per cent of GDP.
  • Net debt is projected to peak at 43.8 per cent of GDP at 30 June 2024 and fall to 39.6 per cent of GDP by 2030–31.


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