CANBERRA, AAP – Josh Frydenberg won’t begin repairing the budget until the unemployment rate is below five per cent.
It is a marked change of strategy for the treasurer, having originally set a target of six per cent last year to begin the budget repair process after spending billions of dollars in protecting the economy from the impact of the COVID-19 pandemic.
The unemployment has since fallen to 5.6 per cent.
“Our focus right now is to get more people in to work, because if you get more people into work, you actually improve the budget bottom line,” Mr Frydenberg told ABC radio ahead of a pre-budget speech on Thursday.
“There is a lot of uncertainty out there, that is why we are going to continue to support the economy in those areas of need.”
Further support will come in the form of targeted programs, rather than emergency schemes like the JobKeeper wage subsidy.
Asked when he hopes to see the unemployment rate below five per cent, Mr Frydenberg said that will be contained in the forecasts of the budget, which cover four financial years.
The budget is due for release on May 11.
In his speech due to be delivered in Canberra, Mr Frydenberg pledges he won’t make a sharp pivot towards “austerity”.
Shadow treasurer Jim Chalmers thought it is “remarkable” that Mr Frydenberg has to publicly rule out austerity measures.
“Austerity should never have been on the table in the first place,” he told AAP.
“What matters with the Morrison Government is not what they announce in speeches but what they actually deliver.”
In extracts of the speech, Mr Frydenberg says the virus remains a threat to both the global and domestic economies, international borders remain largely closed, Australia’s population growth is the lowest in a century and interest rates are close to zero.
“For these reasons, we remain firmly in the first phase of economic and fiscal strategy,” he will say.
“We will not move to the second phase of the fiscal strategy until we are confident that we have secured the economic recovery.”
He said the last time Australia had a sustained period of unemployment below five per cent was between 2006 and 2008 and just prior to the global financial crisis.
A new Treasury paper now puts NAIRU – the non-accelerating inflation rate of unemployment – or the rate of unemployment needed to accelerate inflation and wages, between 4.5 and five per cent.
Previously it was thought to be five per cent.
“In effect, both the RBA and Treasury’s best estimate is that the unemployment rate will now need to have a four in front.”
He will reiterate it was the right decision to end support programs such as the JobKeeper wage subsidy.
“Despite many doomsday predictions of what JobKeeper’s end would mean for the economy, early data indicates the labour market has remained resilient and continued to strengthen,” he will say.