By Swati Pandey
SYDNEY (Reuters) – Australia’s conservative government has abandoned a decade of “debt and deficit disaster” rhetoric, as it focuses on running the economy hot and driving the jobless rate lower heading into its next election.
Treasurer Josh Frydenberg on Thursday provided a foretaste of the government’s spending plans due to be announced in a Budget on May 11, saying “the best way to repair the Budget is to repair the economy” in a remarkable shift to policy.
Before the coronavirus pandemic pushed Australia’s A$2 trillion ($1.6 trillion) economy into recession, Australia’s government led by Prime Minister Scott Morrison was focussed on bringing the budget to black.
But the recession meant Frydenberg oversaw Australia’s largest budget deficit since World War II, with a shortfall of A$85.3 billion in the 2019/20. A deficit of at least A$150 billion is expected in the current year-ending June 30 while another A$50 billion shortfall is seen for 2021/22 fiscal year.
In a speech in Canberra, Frydenberg said the government’s job was not yet done.
“We recognise that the COVID-19 pandemic is far from over. And we know that some businesses and sectors are doing it tough. That is why the Morrison’s government’s economic support is continuing.”
A federal election is likely next year and Frydenberg made it clear the government will not be “undertaking any sharp pivots towards austerity” to rebuild fiscal buffers.
He noted that the “heavily constrained” monetary policy had placed the burden on fiscal policy to boost economic growth and jobs.
The Reserve Bank of Australia (RBA) last year slashed interest rates to a record low 0.1% and announced a government bond buying programme in a bid to keep borrowing costs low.
The RBA has reiterated rates will remain at 0.1% until actual inflation jumps back within its 2-3% band, a goal that has remained elusive for the past five years.
The monetary stimulus, together with the government’s fiscal largesse, have borne fruit with a barnstorm in new jobs, surging house prices and solid consumer spending.
And that will remain the government’s focus.
“By growing our economy we can maintain a steady and declining ratio of debt to GDP over the medium term as we continue to move towards balancing the Budget,” Frydenberg said.
($1 = 1.2822 Australian dollars)
(Reporting by Swati Pandey; Editing by Sam Holmes)
