Australia's budget deficit hit almost $A86 billion ($NZ92bn) last financial year, the biggest blow to the bottom line since World War II, Treasurer Josh Frydenberg has revealed.
The deficit is projected to grow even further this financial year, with the government forecasting a blowout of more than $A184bn in 2020-21.
The government has delayed the budget until October and instead today delivered an economic and fiscal update, which revealed the depths of the economic destruction of the coronavirus.
Treasury is predicting the unemployment rate will be above 9 percent by the end of this year.
"Our economy has taken a big hit and there are many challenges to confront," Frydenberg said.
In December last year, Frydenberg was forecasting a $A5bn budget surplus in 2019-20.
But coronavirus spending measures, including the $A86bn JobKeeper wage subsidy, have instead taken debt to record levels.
"These deficits reveal the real cost to the budget of protecting lives and livelihoods as a result of coronavirus," the Treasurer said.
The government expects net debt reached $A488b at the end of June. It expects that will grow beyond $A677b, equivalent to almost 36 percent of gross domestic product, this financial year.
Gross debt was $A684bn at the end of 2019-20 and is tipped to be almost $A852bn in 2020-21.
If realised, gross debt would exceed Australia's debt ceiling of $A850bn.
The Treasurer said the government would revisit the debt ceiling in the budget because Australia was in a "very difficult and different time" and a new approach was needed.
Income from tax fell $A31.7bn in 2019-20 and the government expects a $A63.9bn decline this financial year.
"Yes, Australia finds itself in a very challenging fiscal position," Finance Minister Mathias Cormann said.
"But we are in a better, stronger, more resilient position than almost any other country around the world."
Frydenberg said about 709,000 jobs were lost to the Covid-19 coronavirus in the June quarter.
The official unemployment rate is at 7.4 percent but that fails to account for people attached to jobs thanks to the government's JobKeeper wage subsidy, or people who have left the workforce.
The government believes the effective unemployment is 11.3 percent, down from more than 13 percent in recent weeks. It expects the official and effective unemployment rates to converge in the months ahead.
Frydenberg conceded further restrictions and outbreaks would likely affect the forecasted 9.25 percent unemployment rate by the end of the year.
He said the government expected unemployment would be "at elevated levels" into early next year.
"Without the government's economic support, unemployment would have been five percentage points higher," he said.
"So the government's actions have saved 700,000 jobs."