A great story to tell on job creation

Josh Frydenberg wants the nation to judge his government’s success on the economy on one measure and one measure only: unemployment.

Here the government has a great story to tell.

Half a million jobs created since the last budget, and Treasury predicts a further 250,000 people will be employed over the coming few years. The jobless rate reached 5.6 per cent in March, versus December’s forecast in MYEFO that it would be 7.25 per cent in the June quarter.

After the 1980s recession it took more than eight years for unemployment to drop back to where it was before the downturn, and close to a decade after the 1990s recession. Treasury’s forecasts have unemployment back at pre-COVID levels of 5.1 per cent in less than two years.

Unemployment will fall below 5 per cent by the middle of 2023, and will be 4.5 per cent over the next couple of years. Aside from a brief period before the GFC, keeping unemployment that low would be the best outcome since the 1970s. In the shadow of the COVID-19 recession, the Treasurer wants to seize this “great and historical opportunity” to achieve full employment.

But the budget forecasts show another potentially historic opportunity may have been missed: to lift the country’s potential growth rate.

Real GDP will surge by 4.25 per cent in 2021-22, but then the rocket fuel of temporary government support runs out, the budget papers show.

Treasury forecasts real GDP will slow to 2.5 per cent in 2022-23, and then to 2.25 per cent in the next financial year. The economy is still only expanding by 2.5 per cent in 2024-25.

In other words, we won’t leave the turbulence of the COVID-19 pandemic with a higher growth flight path.

In fact, the opposite: the nation’s potential growth rate will be lower in the wake of the recession, Treasury says, at “below 2 per cent per annum in the near term”. It will climb to 2.75 per cent “over the medium term to 2031-32” — at the low end of where it has been typically estimated.

These numbers suggest for all the success in driving unemployment down, the country’s long-term prosperity will need more.