DEFICITS: The budget is in a record deficit and is about to go deeper due to spending to counter the impact of the coronavirus pandemic. Tax revenues have taken a hit and the long-time strategy to pursue surpluses has been shelved. The government has been at pains to ensure any of its big spending is not baked into the books over the medium to long term, which has seen controversial cuts to its JobKeeper and JobSeeker programs.

ECONOMY: Australia is in its first recession since the early 1990s as a result of the pandemic, with the economy suffering a massive seven per cent contraction in the June quarter following a more modest decline three months earlier. It is possible the economy could face a third quarterly contraction in row given the impact of the Victorian COVID-19 lockdown, a state that represents 25 per cent of national output.

LABOUR MARKET: COVID-19 lockdowns and a weak economy has seen the jobless rate hit a 22-month high of 7.5 per cent and the number of people unemployed top one million for the first time. The unemployment rate did fall to 6.8 per cent in August, a reprieve from the climb from a pre-pandemic rate of 5.1 per cent. But Treasury and the Reserve Bank expect the rate will rise again, although perhaps not to nine per cent as previously expected. About half of the 760,000 people who lost their jobs at the start of the pandemic have re-entered the market.

WAGES GROWTH: The recession, a weak labour market and a lack of inflation pressures will keep the lid on wages growth. In the June quarter the annual rate of wages growth fell to 1.8 per cent, the slowest pace in more than 20 years, when the Australian Bureau of Statistics started calculating the wage price index.

CONFIDENCE: Consumer confidence – a pointer to future household spending – has partially recovered from the massive jolt from when the coronavirus first hit Australian shores. But confidence gauges still indicate that pessimists outweigh optimists. Business confidence too remains fragile and not the backdrop for firms to take on more staff.

INTEREST RATES: There is speculation the Reserve Bank could trim the cash rate to 0.10 per cent from an already record low 0.25 per cent at its October board meeting and just hours before the budget is handed down, in what economists have called a “Team Australia” event. Some economists expect it to wait until November. Other policy measures, such as the three-year bond yield target, are also expected to be cut to 0.10 per cent. However, the central bank has repeatedly indicated a reluctance to go to negative interest rates or intervene in the foreign exchange market to stimulate the economy through a lower exchange rate.

GLOBAL ECONOMY: As dramatic as Australia’s slump into a recession has been, most other countries have fared far worse. In the June quarter, the UK economy collapsed more than 20 per cent, France by nearly 14 per cent, Canada by almost 12 per cent and the US by just more than nine per cent. China sprung back by 11.5 per cent in the same quarter, reflecting its earlier onset of the pandemic and recovery. The OECD expects world growth to contract by 4.5 per cent in 2020 before rebounding by five per cent in 2021.

COMMODITY PRICES: In December, Treasury had expected the iron ore price to drop to $US55 per tonne. Instead, one of Australia’s major exports doubled in price, fuelled by demand from China as it went into recovery mode after being the first major country to sink into a pandemic-linked recession.

CREDIT RATINGS: Australia remains one of the few countries to hold a triple-A credit rating from the world’s three major rating agencies. In July after the government’s economic and fiscal update, Standard & Poor’s said it was consistent with its AAA rating and negative outlook. But it warned that risks to the outlook remained tilted to the downside as the effects of the pandemic and the response to it evolved. Moody’s Investors Service and Fitch Ratings have a stable outlook on Australia.