UBS: Government debt massive. Not enough!

Via the excellent George Tharenou at UBS:

Record deficits likely: $235bn (12.0% of GDP) in 20/21; $100bn (4.9%) in 21/22

The Australian Government will release the 20/21 (Commonwealth) Budget on October 6 (delayed since May). Unsurprisingly due to COVID-19, we expect record budget deficits. After a balanced budget in 18/19 was the best since the GFC (with the General Government: Underlying Cash Balance at -$1bn), the Final Budget Outcome for 19/20 was -$85bn (or -4.3% of GDP), in line with July’s EFU. For 20/21, despite the ongoing upside surprise of commodity prices, with iron ore alone boosting the budget by $10bn+, we continue to expect a record deficit of $235bn (vs consensus ~-$225bn), significantly worse than EFU (-$185bn, with JobKeeper 3.0 alone costing $16bn); and materially worse than MYEFO (released in Dec-19 at +$5bn), which projected surpluses every year over the outlook. At 12.0% of GDP, the deficit is the largest since WW-II, and ~3x larger than the GFC. However, the vast majority of the Australian Government stimulus so far (of ~$193bn; or ~$244bn or >12% of GDP including the States) is temporary and ‘expires’ by mid-2021. Hence, even with a relatively weak economic recovery to be projected, we still expect a record narrowing of the deficit in 21/22 to -$100bn (or -4.9% of GDP; vs consensus at ~-$138bn; and compares to MYEFO’s +$8bn). Further ahead, we expect a projection of ongoing sharp consolidation in 22/23 to -$50bn (-2.3% of GDP, consensus: ~-$75bn), and in 23/24 to -$35bn (-1.5%).