The March 29 budget will contain “targeted and proportionate” help for families with cost of living pressures and move fiscal policy towards stabilising and reducing debt.
These are the messages in Treasurer Josh Frydenberg’s speech, released before its Friday delivery, laying out the priorities and fiscal setting of the budget, which will be a launch pad for the government’s campaign for the May election.
“The time for large scale, economy-wide emergency support is over,” Frydenberg says, pointing to where the government has already ended emergency measures and rejected requests for more support.
Fiscal settings “need to be normalised,” with the government moving to the next phase of its fiscal strategy.
Government sources stressed this doesn’t mean the government is planning to start cutting. Rather, they said, it aims to control new spending while continuing to grow the economy so there can be a steady then declining ratio of debt to GDP.
With the government under pressure over the cost of living, especially with the soaring of petrol prices, Frydenberg points to what it has done on power prices, child care and tax.
In the budget “there will be further measures to support families to meet the cost of living pressures, in a targeted and proportionate way”, he says.
His speech comes as unemployment fell to 4% in February, in figures released on Thursday. This is the equal lowest in 48 years.
“The Australian economy has recovered strongly and now has real momentum,” Frydenberg says.
“The initial phase of our fiscal strategy has delivered on its objective, with full employment in sight.” The budget “will show the fiscal dividend of this strong recovery.
"With our recovery well underway it is now time to move to the next phase of our fiscal strategy.
"This will see a focus on stabilising and then reducing debt as a share of the economy. Rebuilding our fiscal buffers without risking growth.”
Frydenberg says the budget “will confirm that this is the trajectory we are now on”.
The bottom line will show “substantial improvement”, he says, a result of more people in work and fewer on welfare.
Gross debt as a proportion of GDP will be forecast to peak lower than expected in the December budget update. It is projected to decline over the medium term.
“This is the fiscal dividend of a strong economy”.
Frydenberg stresses the uncertainties ahead, including the pandemic’s continued presence and the war in Europe which has heightened geopolitical risk and threatens global economic growth. Supply chains are strained, and energy prices and inflation are being driven up.
“As we saw entering this crisis, a strong budget and a strong economy put us in the best position to respond.
"That is why it is important to move to the next phase of our fiscal strategy, which will stabilise and reduce debt as a share of the economy”.
Frydenberg emphasises the need for the pace of fiscal consolidation to be gradual.
“It is about striking the right balance. A sharp and sudden tightening in the fiscal settings would likely be counterproductive, undermining the economic recovery and ultimately hurting the budget.”
He says Australia’s debt to GDP levels, even when they peak, will remain low by international standards. “Even as interest rates gradually rise, our debt servicing costs will remain manageable”.