The Australian government will use next month’s budget to target Australia’s unemployment rate and reduce taxes paid as it looks to support the economy post the COVID-19 downturn.
In a speech made ahead of the 11 May federal budget, Treasurer Josh Frydenberg said he plans to delay budget repairs to instead focus on the unemployment rate.
“We will not move to the second phase of our fiscal strategy until we are confident that we have secured our economic recovery,” Mr Frydenberg said.
The Treasurer discussed Australia’s need to drive unemployment down to below 5 per cent for the first time since 2008.
Mr Frydenberg has been adamant that in order to fix the budget deficit, Australia must first fix the economy. He noted on Thursday that for inflation to lift, “the unemployment rate will have to have a 4 in front of it”.
“Just as recently as the mid-year economic and fiscal update in December last year, we thought the unemployment rate would be 7.5 per cent, it is now at 5.6 per cent,”
“That means 200,000 more Australians are in work, and that can improve the budget bottom line by around $5 billion because you have $3 billion less in welfare payments going out and $2 billion more in revenue through taxes coming in,” the Treasurer said.
The Treasurer had previously said that once unemployment was “comfortably below” 6 per cent, the government would shift from providing temporary support to stabilising debt. But tactics appear to have changed, with the government said to be less afraid of the mounting debt, now stating “we won’t be undertaking any sharp pivots towards austerity”.
However, the government will refuse to bring back key policies, including the JobKeeper stimulus, instead aiming for more targeted support.
Tax cuts on the way?
While Mr Frydenberg refused to commit to any major changes to the tax policy, he said the government remains “committed to lowering taxes”.
The next stage of the government’s tax plan is stage three tax cuts, which are due to commence in 1 July 2024, with the Treasurer alluding on Thursday to bringing these forward.
The stage three tax cuts are the largest and most controversial reform to the current system, with all Australian workers earning between $45,000 and $200,000 set to receive the same flat 30 per cent tax rate.
“We will continue to drive lower taxes, whether it’s for businesses or individuals; these are announcements that have already been made and policies that are currently being implemented,” he concluded.
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Article by Cameron Micallef on 29 April 2021 at nestegg.com.au