Treasurer Josh Frydenberg says May’s federal budget will aim to further reduce the unemployment rate to below 5 per cent, while pledging to avoid a sharp pivot towards “austerity”.
In what is likely to be his final major speech before handing down his May 11 budget, the Treasurer will say that despite the fall in the jobless rate to 5.6 per cent, it is still not what he considers to be “comfortably below 6 per cent”.
That was a target he had previously set before undertaking budget repair after the federal government’s big-spending support programs in the face of the coronavirus pandemic.
He will say the virus remains a threat to 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,” Mr Frydenberg will say in a speech in Canberra on Thursday.
“We need to continue working hard to drive the unemployment rate lower. We will not move to the second phase of the fiscal strategy until we are confident that we have secured the economic recovery.”
He wants to drive the unemployment rate down to where it was before the pandemic – 5.1 per cent – and then even lower.
He will say the last time Australia had a sustained period of unemployment of less than 5 per cent was between 2006 and 2008 and just prior to the global financial crisis.
He will say a new Treasury paper puts NAIRU – the rate of unemployment below which inflation is expected to accelerate over time – between 4.5 and 5 per cent, and below 5 per cent previously.
“This lower estimate of the NAIRU means a lower unemployment rate will now be required to see inflation and wages accelerate,” Mr Frydenberg will say.
“In effect, both the RBA and Treasury’s best estimate is that the unemployment rate will now need to have a four in front of it to deliver this outcome.”
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.
He will says the Coalition government’s core values have not changed and it remains committed to lower taxes, containing the size of government, budget discipline and guaranteeing the delivery of essential services.
“But we won’t be undertaking any sharp pivots towards austerity,” he will say.