Australia to aim for less than 5 per cent unemployment: Treasurer

Treasurer Josh Frydenberg has revealed a new target in a pre-budget speech, sparking a shift in the government’s economic approach.

The federal government has set an ambitious unemployment target and will focus on targeted spending, not austerity, to get there.

Treasurer Josh Frydenberg has delivered a major pre-budget speech, ruling out budget repair until the unemployment rate has dropped below 5 per cent.

Mr Frydenberg said it was necessary for unemployment, which stands at 5.6 per cent, to drop before workers would see their wage rise.

“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 said.

“We want more people in jobs and in better paying jobs. This is what our fiscal strategy is designed to achieve.”

Josh Frydenberg wants unemployment to drop below 5 per cent. Picture: Gary Ramage

Mr Frydenberg had previously set a target of under 6 per cent unemployment before budget repair could begin after a year of big spending to soften the economic blow of COVID-19 pandemic.

But Thursday’s speech has now given the government licence for further spending, with Mr Frydenberg explicitly ruling out a “sharp pivot towards austerity”.

Despite the shifting strategy, the Treasurer insisted the government’s “core values have not changed” and had the “track record to prove it”.

“We remain committed to lower taxes, containing the size of government, budget discipline and guaranteeing the delivery of essential services,” he said.

The Treasurer stressed that 200,000 more people were in work than predicted in the MYEFO update in December, saying that equated to a $5bn boost to the budget’s bottom line.

Jim Chalmers says its ‘remarkable’ the government needs to explicitly rule out austerity. Picture: NCA NewsWire / Dan Peled

But he warned although the economy had been more resilient than the “most optimistic forecasts”, the government needed to be “very cautious … and considered” as Australia emerged from COVID-19.

“The key to repairing the budget is to repair the economy,” he told the ABC.

“But there is still a lot of uncertainty out there and that’s why the budget … is going to keep that focus on skills, on infrastructure, on tax, and on ensuring we guarantee those essential services like aged care.”

Labor treasury spokesman Jim Chalmers said it was “remarkable” the government needed to explicitly rule out austerity.

“We’ve heard all kinds of spin from the Treasurer before budgets, but the Liberals’ real record over eight long years has been weak wages growth, job insecurity and underemployment,” he said.

“Of course they should be more ambitious on full employment, we’ve been saying that all along, but they don’t have a credible plan to actually achieve it.”

Mr Chalmers described the economic recovery as “welcome” but “patchy”.