© Alex EllinghausenTreasurer Josh Frydenberg: "We can see the mountain ahead and Australia begins to climb. We must remain strong."
At a special budget update on Thursday, the first since December, Mr Frydenberg said the unemployment rate was expected to reach 9.25 per cent in the December quarter, while GDP would contract by 0.25 per cent in 2019-20 and shrink 2.5 per cent in 2020-21.
The economic downturn has cost the budget $32.4 billion in 2019-20 and $72.2 billion in 2020-21. Tax receipts are down $31.7 billion in 2019-20 and $63.9 billion in 2020-21.
The country will be in $851.9 billion of debt at June 30 next year. Mr Frydenberg described the record debt burden as "manageable", saying historically low interest rates had kept debt servicing costs down.
"Australia is experiencing a health and economic crisis like nothing we have seen in the last 100 years," he said. "Our economy has taken a big hit and there are many challenges we confront. We can see the mountain ahead and Australia begins to climb. We must remain strong.
"We will get through this and we will get through this together."
One of the major concerns facing the government is job creation, with more than 870,000 jobs lost between March and May this year. About 1 million workers had their hours cut.
"These are mums and dads, sons and daughters, friends and colleagues," Mr Frydenberg said.
"Without the government's economic support measures, unemployment would've peaked at 5 percentage points higher. The government's economic measures have saved 700,000 jobs."
Extra spending to prop up the economy, including a revamped JobKeeper wage subsidy program, is contributing to the deterioration in the nation's finances. The federal government has committed itself to $134 billion in spending in response to the coronavirus outbreak, including $86.3 billion in 2020-21.
Australia's deficit estimated at $85.8 billion for 2019-20 will rise to $184.5 billion in 2020-21, the Treasury revealed.
Mr Frydenberg said about 99 per cent of the government's spending to mitigate the effects of the pandemic had been over 2019-20 and 2020-21.
"Our measures have been temporary, they've been targeted and they've helped maintain the structural integrity of the budget," he said.
The pandemic has dashed the Morrison government's plans to be "back in the black" and produce the first surplus since 2007-08. In December, the government had expected to reach a $5 billion surplus in 2019-20 and a $6.1 billion surplus this financial year.
The 2020-21 deficit is about four times the last record, which was $54.5 billion when the Rudd government tackled the global financial crisis.
Comment: So the lockdown created debt four times that of the global financial crash of 2008.
At the government's midyear economic and fiscal outlook, the unemployment rate was forecast to hit 5.25 per cent in 2019-20 and remain stable in 2020-21. Employment growth was expected to be "underpinned by a pick-up in the real economy". Real GDP was expected to grow 2.25 per cent in 2019-20 and 2.75 per cent in 2020-21.
Comment: Expected growth is not growth and it will only materialize if the economy picks up.
Economists were expecting the deficit for 2019-20 to reach at least $90 billion and the current year's deficit to top $200 billion.
The full extent of the deficit for 2020-21 is unlikely to be known until the October budget with the government considering extra spending measures, including a lift in the base rate of JobSeeker, bringing forward already legislated tax cuts as well as new infrastructure projects.
Mr Frydenberg warned forecasting was "difficult at the best of times" and even tougher during the uncertainty of a global pandemic.
"These numbers reflect the harsh reality we find ourselves in," he said. "How we manage future cases of coronavirus will be absolutely key to the economic recovery, both the speed and trajectory," he said.
He said the figures in the economic update were based on "what we know at the time" and included assumptions that current lockdowns and border restrictions would be gradually lifted.
The new restrictions in Victoria, including the shutting of the border with NSW and a lockdown of Melbourne and the Mitchell Shire, would cost $3.3 billion and strip 0.75 percentage points from economic growth in the three months to September.
It is unclear what effect an extension of this shutdown, which Victorian Premier Daniel Andrews warned this week could be a possibility, would have on the federal budget.
"That is why learning from the lessons and experiences in Victoria will be critical," Mr Frydenberg said. "We do know that as the economy opens up and restrictions ease that jobs are being found."
Finance Minister Mathias Cormann said Australia had outperformed "nearly every other country" in terms of health and economic outcomes but warned there was still uncertainty and full forecasts would be in the October budget.
"Australia finds itself in a very challenging fiscal position as a result of the impact of the coronavirus," he said.
Comment: See also: