Implications of JobKeeper’s missing $60 billion
Last Friday the Australian Treasury and Taxation Office announced a $60 billion error in the forecast cost of the Federal Government’s leading JobKeeper program. The error reduces the expected program cost from $130 billion to $70 billion, a decline of ~3% of GDP.
There are three major implications of this major revision. First, the economic cost of Australia’s lockdown appears much smaller. Together with Australia’s three-step restart plan, we estimate the lockdown cost will be ~2.5% of GDP, about 1% of GDP smaller than our prior estimate, and far better than consensus.
Second, the size of the Government’s fiscal stimulus declines from close to 13% of GDP to ~10% of GDP. This lowers the blowout in the budget deficit, but the deficit still seems likely to reach more than 5% of GDP.
Third, consumer confidence seems likely to prove more resilient than expected. Compared to the GFC, a shock that depressed confidence for almost two years, Australia has so far controlled COVID-19 in under two months. Together with zero rates, unprecedented fiscal stimulus and positioning that should limit the rise in unemployment, this should help drive an early recovery in consumer confidence and spending.
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