UBS reduces fiscal cliff expectation to $80b

29 July 2020

UBS has reduced its expectations for a potential fiscal cliff from $100 billion to $80 billion as a result of recently-announced expanded Government stimulus.

At the start of the month, the firm said it expected Australia to reach a $100 billion fiscal cliff in the fourth quarter of the year. This figure was calculated on the basis of the sum of income tax, GST and company tax in one quarter.

However, it had since updated its figures as the Government had extended JobKeeper by six months and JobSeeker by three months, a combined stimulus measure of $20 billion. Early access to superannuation had also been extended by three months until the end of 2020.

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There was also the possibility of further stimulus still to come in the shape of investment tax breaks, income tax cuts and increased infrastructure investment.

In an economic note, the investment bank said: “To date, we estimate the total Government (including States) fiscal stimulus is $214 billion or 11% of GDP. We are now factoring in $50 billion of additional fiscal stimulus in the near-term to our forecasts.

“While the size of the quarter-on-quarter policy cliff in Q4 has been reduced (and we expect more stimulus ahead to smooth it further), it remains very large currently at $80 billion or 16% of quarterly gross domestic product.”

It also expected unemployment would peak at 8%, in contrast to figures from the Reserve Bank of Australia which said it expected unemployment to peak at 10%, but would be slow to recover and remain at 7.5% at the end of 2021.

 

 




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