Josh Frydenberg wants to drive the unemployment rate below five per cent, saying he will deliver another “pandemic budget” on May 11.
It is a marked change of strategy for the treasurer, having originally set a target of six per cent last year to begin the budget repair process after spending billions of dollars in protecting the economy from the impact of the COVID-19 pandemic.
The unemployment has since fallen to 5.6 per cent.
In what is likely to be his final major speech before budget night, Mr Frydenberg also laid out areas that will be targeted in pursuit of getting more people being in jobs with better pay.
“That is what our fiscal strategy is designed to achieve,” he told the Australian Chamber of Commerce and Industry event in Canberra on Thursday
He said in the long run the key to sustainably delivering higher real wages was through a lift in productivity.
“That is why the government will continue to pursue a range of reforms and investments to boost productivity and set Australia up for the future,” he said.
This would include measures in the areas of skills, infrastructure, tax, energy, the digital economy and deregulation, “to name just a few”.
He told ABC radio before delivering the speech there was a lot of uncertainty caused by the pandemic and why the government was going to continue to support the economy in those areas of need.
“Our focus right now is to get more people into work because if you get more people into work, you actually improve the budget bottom line,” he said.
Asked when he hoped to see the unemployment rate below five per cent, Mr Frydenberg said that would be contained in the forecasts of the budget, which cover four financial years.
In the speech, Mr Frydenberg pledged he would not make a sharp pivot towards “austerity”.
Shadow treasurer Jim Chalmers thought it was “remarkable” that Mr Frydenberg had to publicly rule out austerity measures.
“Austerity should never have been on the table in the first place,” he told AAP.
“What matters with the Morrison government is not what they announce in speeches but what they actually deliver.”
Mr Frydenberg says the virus remains a threat to both 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,” he said.
“We will not move to the second phase of the fiscal strategy until we are confident that we have secured the economic recovery.”
A new Treasury paper now puts NAIRU – the non-accelerating inflation rate of unemployment, or the rate of unemployment needed to accelerate inflation and wages – between 4.5 per cent and five per cent.
Previously it was thought to be five per cent.
“In effect, both the RBA and Treasury’s best estimate is that the unemployment rate will now need to have a four in front.”