Josh Frydenberg is confident the economy will continue to strengthen and that the unemployment rate will fall further, even when temporary support measures like the JobKeeper wage subsidy end in March.
The treasurer jumped on recent figures showing households and businesses have amassed more than $200 billion in savings during the pandemic.
“I’m confident that people will spend that money across the economy and help generate economic activity,” Mr Frydenberg told reporters in the Victorian town of Torquay on Thursday.
He said past experience shows when people have become cautious with their savings in previous economic downturns “that money does get spent”.
But shadow treasurer Jim Chalmers said there are no guarantees that will happen.
“A reason that we’ve got these higher savings is because there’s been so much uncertainty in the economy. That uncertainty hasn’t disappeared entirely,” Dr Chalmers told ABC radio.
“So we shouldn’t have a treasurer congratulating himself while there’s all these people unemployed and underemployed and wages are still stagnant. There are still people struggling in the economy.”
Mr Frydenberg did concede that some businesses could go under this year having deferred their insolvency during the recession under measures introduced by the government.
“But overall, the economy will continue to strengthen, even when those temporary emergency measures come off,” he said.
The tourism industry in particular is urging the treasurer to extend the JobKeeper program for a sector that has suffered the impact of both domestic and international borders closures more than most.
But Mr Frydenberg appears intent to end JobKeeper at the end of March as planned and said the government has no plans to change its parameters for individual industries.
“Even when JobKeeper comes off at the end of March, the unemployment rate will start to come down,” he said.
Figures released this week back this expectation with job vacancies having grown by a further 23 per cent in the November quarter and now surpassing the pre-COVID levels seen in February.
“With Australia’s participation rate at its equal highest on record and with vacancy levels above pre-COVID levels, the risk is that unemployment falls more sharply than currently forecast by the RBA and Treasury,” National Australia Bank economist Tapas Strickland said.
“This would be good news for the economy and would suggest the budget deficit could improve more quickly than expected.”
The unemployment rate was 6.8 per cent in November after hitting a 22-year high of 7.5 per cent in June.
It now sits just below the OECD average of 6.9 per cent.
In last month’s mid-year budget review, Treasury forecast the jobless rate falling further to 6.25 per cent in the next financial year and to 5.75 per cent in 2022/23.