Budget Review 2020–21 Index

Phillip Hawkins

Australian Government expenditure increased significantly in 2019–20 and is expected to increase further in 2020–21 largely due to the Government’s economic response to the COVID-19 pandemic.

This brief uses functional expenditure data, published in Budget Strategy and Outlook: Budget Paper No. 1: 2020–21, Statement 6: Expenses and Net Capital Investment to illustrate the extent to which expenditure has increased in 2019–20 and 2020–21 and across the forward estimates and highlights the areas of expenditure which have been most affected by the pandemic.

Expenditure by function

Figure 1 below shows Australian government expenditure by function since 2018–19.

Figure 1: Australian government expenditure by function

Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2020–21, Statement 6: Expenses and Net Capital Investment, p. 6-49 and Australian Government, Final Budget Outcome 2019-20, p. 12.

Social security and welfare is the largest functional expenditure of the Australian Government accounting for just over a third of all Government expenditure. This function includes age pension expenditure, family tax benefits, child care subsidies, JobSeeker payments and the National Disability Insurance Scheme. The social security and welfare expenditure budget brief provides more detail on this expenditure.

Health expenditure, which includes Medicare expenditure and Australian government expenditure on hospitals and aged care, accounted for around 15.0 per cent of all Australian Government expenditure in 2019–20. The COVID-19 pandemic has led to an increase in expenditure on health, as discussed in the public health response to COVID-19 budget brief.

General revenue assistance is money paid by the Australian Government to the States and Territories and local government to spend on any purpose (also called ‘untied’ funding). This is distinct from funding provided by the Australian government to other levels of government for agreed specific purposes such as building hospitals, infrastructure or funding schools. This expenditure is largely payments of the goods and services tax, which is collected by the Commonwealth but transferred to the states and territories. General revenue assistance accounted for around 11.1 per cent of Government expenditure in 2019–20.

Education which includes Australian Government funding for primary and secondary education and tertiary education accounted for around 6.9 per cent of Government expenditure in 2019–20.

The economic response to COVID-19 includes the JobKeeper program and JobMaker Hiring credit and is expected to account for 9.5 per cent of Government expenditure in 2019–20, growing to 12.3 per cent of expenditure in 2020–21. Table 1 shows the total amount of expenditure included in the Government’s economic response to the COVID-19 pandemic over each year of the forward estimates period. This expenditure is expected to peak at $82.5 billion in 2020-21, or around 12.3 per cent of Government expenditure in 2020-21 before declining substantially in subsequent years. This reflects that the economic response to COVID-19 is anticipated to be temporary.

Table 1: economic response to COVID-19

Australian Government, Budget Strategy and Outlook: Budget Paper No. 1: 2020–21, Statement 6: Expenses and Net Capital Investment, pp. 6-10.

Trends in expenditure

Figure 2 shows Government expenditure as a proportion of GDP over the last 20 years. Prior to 2019–20 expenditure ranged from around 24 per cent to just over 26 per cent of GDP averaging 25.1 per cent of GDP and peaking over this period at 26.2 per cent of GDP in 2009–10. However, as a result of COVID-19, in 2019–20 expenditure grew to 29.2 per cent in GDP and it is expected to peak at 34.4 per cent of GDP in 2020­–21 which is 9.3 per cent of GDP higher than the average level over the prior 20 years

Figure 2: total expenditure and the size of the economic response to COVID-19

Australian Government, Budget strategy and outlook: budget paper no. 1: 2020–21, Statement 11: Historical Australian Government data, p. 11-6.

The economic response to COVID-19 is a significant component of the additional expenditure expected in 2020–21, accounting for an estimated 4.1 per cent of GDP in that year.

Other significant contributors to the increase in expenditure are:

• social welfare and expenditure, which is expected to grow from 8.7 per cent of GDP in 2008–09 to 11.7 per cent in 2021–22 (3.0 per cent of GDP higher). This is largely being driven by significant increases in expenditure on the JobSeeker payment and through the Coronavirus Supplement and Economic Support Payments.
• health expenditure which is expected to grow from 4.1 per cent of GDP in 2018–19 to 4.8 per cent of GDP in 2020–21 (0.7 per cent of GDP higher). This includes substantial expenditure on health responses to COVID-19.
• education expenditure which is expected to grow from 1.7 per cent of GDP of 2018–19 to 2.1 per cent of GDP in 2020–21 (0.4 per cent of GDP higher). This largely reflects increased expenditure for tertiary education for that year, including temporary additional research funding.
• transport expenditure is expected to grow from 0.4 per cent of GDP to 0.7 per cent of GDP (0.3 per cent of GDP higher). This partly reflects a substantial increase in expenditure on air transport due to expenditure measures to support the airline industry. Government expenditure on air transport was $299 million in 2018–19 but is expected to be six times higher in 2020–21 at $1,836 million. Expenditure on rail and roads is also anticipated to be higher.

Much of the increase in expenditure in 2019–20 and 2020–21 is anticipated to be temporary with expenditure estimated to fall to 27.1 per cent of GDP in 2023–24 (albeit still around 2 per cent of GDP higher than the average level over the last 20 years).

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