Australia extends airline relief package with budget deficit seen at $140 billion

SYDNEY (Reuters) - The Australian government said on Monday it will extend a COVID-19 relief package for domestic airlines by four months in its annual budget, as one economics forecaster predicted the country would record a A$198.5 billion ($140 billion) deficit.

The federal government will continue underwriting domestic flights until Jan. 31, 2021, and flights to regional locations until March 28 when it delivers its annual budget on Oct. 6, Deputy Prime Minister Michael McCormack said in a statement.

The extension reflects uncertainty about how long the new coronavirus will impact the Australian aviation industry, which has seen most of its revenue wiped out by the closure of national and internal state borders. Previously the government gave a Sept. 30 end date for the relief package.

“The disruption caused by current border arrangements has made life difficult in the aviation industry, with cancelled flights, refunds and passenger frustration,” McCormack said in a statement.

“Uncertainty affects the ability of airlines and airports to plan for recovery and undermines consumer confidence, which amounts to a significant cost to industry and ultimately the Australian economy.”

McCormack did not put a dollar figure on the support package extension but said the government had already spent more than A$150 million on it since introducing it in April.

Economics forecaster Deloitte Access Economics, meanwhile, said it expected Australia to post a budget deficit A$14 billion larger than the government forecast in July before its second biggest city, Melbourne, returned to lockdown to stop a second wave of virus infections.

The deficit was, however, “better than expected”, said Deloitte, mainly because the price of iron ore, a key export commodity, had risen instead of falling as predicted.

Australia government postponed its annual budget announcement from the usual timing in May, saying the disruption caused by the virus had made it impossible to give economic forecasts.

Reporting by Byron Kaye; Editing by Kim Coghill