Australia will shoot for unemployment below 5 per cent before the Government attempts to repair the budget, Treasurer Josh Frydenberg said in a pre-budget speech on Thursday.
The Government is due to reveal the 2021 Budget on 11 May, and this year’s focus will be on private sector growth and reducing unemployment from 5.6 per cent to below 5 per cent.
The unemployment rate hasn’t been that low since the 2006 - 2008 era.
“Private sector growth is the essential ingredient in maintaining a strong economy and a sustainable fiscal position over the longer term, you can’t have one without the other,” Frydenberg said.
“Large scale government support is no substitute for sustainable jobs in profitable firms.”
Frydenberg had previously said that once unemployment was “comfortably below” 6 per cent, the Government would shift from providing temporary support to stabilising debt.
However, that plan has been abandoned. The removal of the JobKeeper stimulus means Australia’s 5.6 per cent unemployment rate is fragile, and could well increase.
Instead, the Government will now wait until unemployment is below 5 per cent to pursue more austerity measures.
According to the non-accelerating inflation rate of unemployment rate, the jobless rate will need to slip between 4.5 per cent and 5 per cent before wages begin to increase.
“We won't be undertaking any sharp pivots towards austerity,” he said.
"We will not move to the second phase of our fiscal strategy until we are confident that we have secured the economic recovery. We first want to drive the unemployment rate down to where it was prior to the pandemic and then even lower. And we want to see that sustained."
Australia is expected to see a deficit of around $213.7 billion in the May budget, or around 11 per cent of GDP.
While Frydenberg won’t reveal any major movements for Australia’s tax policy, he said the Government remains “committed to lower taxes”.
The Government last year brought forward stage two of tax cuts previously legislated to come into effect in 2022.
Now, there are questions around whether the Government will this year bring forward tax cuts previously legislated to come into effect in 2024.
The stage three tax cuts are the biggest element of the Government’s tax reform plan and will see all Australians earning between $45,000 and $200,000 receive the same flat 30 per cent tax rate.
This stage of the tax cuts has been criticised as contributing to inequality, after Parliamentary Budget Office analysis found 58 per cent of the benefit of the cuts will flow to high income earners.
Analysis from The Australia Institute released this week also found that this stage of the cuts will cost $18 billion.
However, 67 per cent of the benefit will flow to men and 33 per cent to women.