Peter Switzer: Hello, and welcome to Switzer Investing Insights brought to you by the nabtrade. And today, we want to look at Josh Frydenberg's economic update to see what impact it might have, not only on the economy but more importantly to us, the stock market. Paul?
Paul Rickard: We'd have to say, Peter, the forecast he's given us is pretty positive, I would think, better than maybe the market was expecting. Let's just hit the top numbers. The deficit for last financial year, just completed blowing out to $85.8 billion. Next year, he's talking about a deficit. This is the year we're currently in, just started $184.5 billion dollars. If you're worried about debt, that takes our gross debt out to $852 billion and net debt percentage of GDP blows out 35.7%-
Peter Switzer: Yeah. Can I just throw something in here as well, Paul? That gross debt is about 50% of GDP. America's well over a 100% of GDP.
Paul Rickard: Yeah. And look really, I guess, you shouldn't get too worried about that, but still it's a big increase in number. But probably the numbers that are probably most surprising is a GDP forecast. He is only expecting a contraction this year of 2.5%, and that's probably a little bit lower many people are forecasting.
Peter Switzer: Ah, most definitely.
Paul Rickard: Year on year, financially or for the calendar year 2020, a contraction of just three and three quarter a percent followed by a bounce back in the 21 calendar year of 2.5%. That's a lot lower than the IMF and others have been forecasting. Unemployment is expected to peak at around nine and a quarter percent in the December quarter this year. Also, some other assumptions that have come into those numbers, Peter, just worth sort of hashing out in some ways, because you might say these are a little bit optimistic as well. Victoria only facing a six week lockdown. Now, some of the data suggests that maybe we're three weeks in that might extend a bit further-
Peter Switzer: That's right. If those numbers are longer, the other numbers will not be as optimistic, they will have to be tweaked without a doubt.
Paul Rickard: Treasury suggesting that international travel will return from one January, doesn't mean we're all going to be suddenly on planes, but at least borders will be reopened to some extent.
Peter Switzer: That's right. Students might be allowed in. Two-week quarantines.
Paul Rickard: And they didn't talk about a vaccine and dates there, but clearly the government's still banking to some extent on the development of vaccine and that becoming available. Otherwise yeah, you'd be looking at much worse set of numbers for next year.
Peter Switzer: Without a doubt, Wall Street's optimism, which is carried over to all markets around the world, is linked to the fact that they believe there will be a vaccine before the end of the year and top Medico in the USA, Dr. Anthony Fauci, said exactly that only a week ago.
Paul Rickard: Now, the impact of what the government is doing, they're throwing so much money at the problem, Peter, it's just worthwhile highlighting these two graphs. The dark line shows after the government support, the lighter blue line shows before the government support, so you can see the impact of the government's support is higher GDP and a much lower rate of unemployment.
Peter Switzer: Yep. And those numbers are a reflection of how much money has been thrown at the problem, and quite wisely the extension of job keeper partly explains why those lines look good as well.
Paul Rickard: Well, let's move on to job keeper and job seeker. So we'll look at the key changes that were announced a couple of days ago. The full-time rate goes from $1,500 down to effectively a $1,000 in the third period, January to March 2021. Now a two-tier system, so there'll be a difference between full-time versus part-time. The employer test is the same, but the period's extended, so employers will need to demonstrate that for the next round of job keeper in October, that their turnover was down 30% in each of the June and September quarters.
Peter Switzer: Or more.
Paul Rickard: For bigger businesses of over a billion dollars, that's 50%, and when it comes to the third period, they'll need to demonstrate that turnover was down by at least 30% in June, September, and the December, quarters. The number of employees to be covered goes from $3.5 million dollars to $1.4 million dollars in the second period, and $1 million in the third period, that's obviously implying that employment is picking up hence the peaking in unemployment in December. And for those on the job seeker, it gets cut by effectively $300 a fortnight, so down to $810 for at least the period up to the 31st of December. But it's not the only stimulus measures, there's three others that just worth highlighting. There's a loan scheme for small and medium sized businesses, that's been extended to the 30th June 2021.
Peter Switzer: Yeah. And that's where the government basically will put 50% in and back a loan up to the tune of a million dollars and it was only for working capital, now it's for any investment or expansion reason.
Paul Rickard: Yep. There's also a lot of training packages. We've got job a job trainer skills packages to help new people get started in doing tertiary courses and some TAFE courses. There's also a supporting apprentices wage subsidy. That's been extended for another six months, plus expanded to medium sized business. So expect a lot of younger people to be taking up apprenticeship offers. And finally, perhaps the one that was a little bit of a surprise, was the early release of super. That was due to expire on the 24th of September, that's been rolled out now to the 31st of December.
Peter Switzer: So, Paul, when you put it all together, certainly the last one could have a bit of an impact on the stock market in a negative way, but to my way of thinking, if I'm trying to work it out where my company is going over the next six months, and I look at the government's forecasted figures, I might be more optimistic on my company and that should affect my share price.
Paul Rickard: Yeah. To answer the question we post, will it keep the stock market rolling? I think overall, we've got to say the package and what the government's doing is pretty positive for the stock market. Sure, some of the assumptions might be a little bit-
Peter Switzer: Rubbery?
Paul Rickard: Well, maybe we could say courageous-
Peter Switzer: Optimistic.
Paul Rickard: Optimistic. But they are throwing the kitchen sink and they're going to continue throw the kitchen sink at the problem, so that's got to be good for employment. And the long term, it's also got to be help for the stock market in the medium to short term as well. I guess the challenge is how do we ever repay the debt? But that's a problem when interest rates are at quarter percent and staying there. That's probably a problem we don't need to think about too much.
Peter Switzer: Yes, you're right. And if you get economic growth, eventually it will be repaid. That's Switzer Investing Insights brought to you by nabtrade. Thanks for joining us.