Australia set to open the spending tap

Australia’s Government will use Tuesday’s Budget as a spending springboard to restart the economy, with Treasurer Josh Frydenberg ditching fiscal restraint to pull the nation out of recession.

Frydenberg’s plan to resuscitate growth is set to see the Budget deficit gape to A$ 220 billion ($ 237b), or 11.6 per cent of gross domestic product, this fiscal year, according to the median estimate from a Bloomberg survey of economists. That’s a A$ 35.5b blowout from Treasury’s July forecast.

Unemployment is set to rise to 8 per cent by June 2021, from the current 6.8 per cent, according to the median estimate from Bloomberg’s survey. Treasury’s July update predicted unemployment would peak at

9.25 per cent this quarter, while the Reserve Bank of Australia sees a peak closer to 10 per cent.

Frydenberg i s set to keep stimulus flowing until joblessness heads back towards full employment — considered to be around

5 per cent — setting up a spending spree before an election due mid- 2022. Economists predict unemployment will still be about 7 per cent around that date.

Australia’s Government is expected to bring forward legislated income- tax cuts scheduled for July 2022, amending brackets so a greater share of a person’s wages are taxed at lower rates.

Bringing forward tax cuts will spur households to part with some of their recently built up savings from the earlier government stimulus, according to the Commonwealth Bank of Australia. With the savings ratio at a 46- year high, tax cuts might encourage households to deploy that cash, which would be a boon for consumption that accounts for about 55 per cent of GDP.