Treasurer Josh Frydenberg will declare it is time for Australia to transition to the “second phase” of its economic recovery, with attention to turn to reducing debt and rebuilding “fiscal buffers”.
In a major pre-budget speech on Friday, Mr Frydenberg will also promise families there will be measures to ease cost-of-living pressures – but with the proviso it will be done in a “targeted and proportionate way”.
With the price of oil at its highest in more than a decade due in part to the war in Ukraine, and Covid-related supply chain issues, along with floods and droughts pushing up grocery prices, Mr Frydenberg will concede that cost of living pressures are “real”.
“International factors, including rising global oil prices and shipping costs have seen our inflation rate rise to 3.5 per cent,” he will say.
“While inflation in Australia is less than half of the 7.9 per cent seen in the United States and well bexjmtzywlow that of the United Kingdom, Canada, Germany and New Zealand, cost of living pressures are real.
“In the budget in less than two weeks’ time, there will be further measures to support families to meet the cost of living pressures, in a targeted and proportionate way.”
Speaking at the Australian Chamber of Commerce and Industry, the Treasurer will say that his fourth budget to be handed down in 11 days time will show a “substantial improvement” to the bottom line.
He will say that after nearly two years it is time to move on from the “first phase” of updated fiscal strategy put in place due to the pandemic.
“It is this underlying strength and resilience of Australia’s economy that now enables us to transition to the second phase of our fiscal strategy,” he will say.
“In the second phase of our fiscal strategy, we will target a budget position that allows us to stabilise and then reduce debt as a share of the economy.
“This year’s budget will confirm that this is the trajectory we are now on.”
The Treasurer will say this means the days of crisis level economic support are now in the past.
“With our tight labour market and our strong economic recovery, continued support at those levels would do more harm than good,” he will say.
“It would risk putting further pressure on inflation, interest rates and cost of living.”
Mr Frydenberg will say gross debt as a proportion of GDP is expected to peak lower and earlier than what was forecast in the mid-year budget update in December.
“Gross debt will not only stabilise but will decline over the medium term,” he will say.
“Provided nominal economic growth exceeds the nominal interest rate, economic growth will more than cover the cost of servicing our debt interest payments.
“As a result, by growing our economy we can maintain a steady and declining ratio of debt to GDP even without running surpluses.”
After figures on Thursday showed Australia’s unemployment rate had fallen to its lowest level in 14 years, Mr Frydenberg will say this month’s budget is the time to reign in spending.
“What recent years have shown, is that we live in very uncertain times,” he will say.
“It’s a reminder that we must take the opportunity, while the economy is strong, to strengthen our budget and rebuild our fiscal buffers: so that in the future, we have the fiscal firepower to respond.
“The pandemic is still with us and new variants may yet emerge.
“There is war in Europe, which has heightened geopolitical risk and threatens global growth.
“Together, the pandemic and events in Ukraine are straining supply chains and driving up energy prices and inflation.”
But Mr Frydenberg will say this involves “striking a balance” and controlling new spending, rather than cutting.
“A sharp and sudden tightening in the fiscal settings would likely be counter-productive, undermining the economic recovery and ultimately hurting the budget,” he will say.
“We do not want to put at risk the hard-fought gains we have made.”
