Josh Frydenberg wants to drive Australia's unemployment rate below five per cent before he begins the task of budget repair, in what is a marked shift in strategy.
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The treasurer originally set a target of below six per cent last year to begin the repair process after spending billions of dollars protecting the economy from the impact of the COVID-19 pandemic.
The unemployment rate has since fallen to 5.6 per cent.
In a speech ahead of the May 11 budget, Mr Frydenberg also laid out key areas that will be targeted in pursuit of getting more people 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, adding this will be another "pandemic budget".
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.
"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.
Economics consultant Nicky Hutley described the change in the jobless rate target as an "excellent piece of policymaking".
But she said everything would hinge on what was actually in the budget because without extra or ongoing support, unemployment would not get there.
Australian Industry Group chief executive Innes Willox also welcomed the treasurer's more ambitious unemployment goal.
"While making further inroads into unemployment may involve extra government spending, if successful it can also add to economic capacity and improve the budget bottom line in coming years," he said.
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.
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."
Australian Associated Press
