Canberra has announced a pre-election spending spree worth tens of billions of dollars, with tax cuts and boosts for age care, childcare and women’s wellbeing partly funded by a A$53bn windfall from surging iron ore prices and a better than expected jobs recovery.
The 2021-22 budget comes after stronger than expected economic rebound due to the suppression of Covid-19, with the unemployment rate of 5.6 per cent below pre-pandemic levels and growth forecast to rebound 4.25 per cent in 2021-22.
But in a bid to keep coronavirus from spreading in the community, the conservative government signalled on Tuesday that it planned to keep Australia’s international borders closed until mid-2022.
“Our first priority is to keep Australians safe from Covid,” said Josh Frydenberg, Australia’s treasurer, in a budget speech.
He said any decision on reopening borders would depend on what was happening with the virus globally, including the spread of new Covid-19 variants. Australia’s delayed vaccine rollout should be complete by the end of 2021, said Frydenberg, adding that reopening borders was an “imprecise business” based on medical advice.
Australia closed its border to non-residents early in the pandemic, resulting in net outward migration of almost 100,000 over the past 12 months. This helped it to contain the Covid outbreak and limit the spread of the virus to just a handful of daily cases, mainly in hotel quarantine.
But the slow pace of reopening borders has disappointed businesses reliant on tourism and inward migration. Last week Alan Joyce, Qantas chief executive, warned Australia risked becoming a “hermit” country due to its caution on reopening borders. Universities say the loss of international students is decimating their finances.
However, opinion polls show the cautious approach to international and state border closures remains popular with the public.
Analysts said the government’s focus on maintaining border security and safety and its continuing pivot away from fiscal discipline to prioritising jobs and social spending could result in an early election.
“The budget will give the government the option of a late 2021 election, but any decision on that will depend on the success of the vaccine rollout, which has been much slower than planned,” said Ian McAllister, professor of politics at Australian National University.
An election must be held by the middle of next year.
The government unveiled several big spending pledges, including a A$17.7bn package aimed at improving age care, A$1.7bn investment in childcare and A$1.1bn to boost women’s safety, health and economic security. It also includes almost A$30bn in personal income and temporary business tax cuts.
For the first time the government published a separate women’s budget statement — an initiative that follows criticism over its failure to properly investigate the alleged rape of a staff member in parliament in 2019.
“We must do more to end all forms of violence against women and children,” said Frydenberg.
Budget papers show Australia’s deficit is forecast to reach A$161bn this year (2020-21) or 7.8 per cent of gross domestic product. This is A$52.7bn lower than forecast six months ago during a Covid-19 induced recession, although it remains at a modern-era high.
Tax receipts are forecast to be almost A$35bn higher than anticipated in October due to the increase in employment, consumption and a boom in company taxes linked to record iron ore prices. The government had anticipated iron ore prices would be $55 per tonne in its previous economic forecasts. This week the price of the steel making ingredient hovered close to $230 per tonne. The jobs recovery has also reduced the forecast spend on welfare. By 2024-25 the government forecasts the deficit will be A$57bn or 2.4 per cent of GDP.