Mr Frydenberg said the government would not aim to deliver another surplus until unemployment was comfortably below 6 per cent, given it would be “damaging to the economy and unrealistic”.
“Under the previous strategy our plan was to deliver budget surpluses of sufficient size to significantly reduce gross debt and eliminate net debt by the end of the medium-term,” Mr Frydenberg said.
“Unfortunately, in the face of this shock, this is no longer the prudent or appropriate course of action.”
Any restoration of the so-called “fiscal buffers” will come under phase two of Mr Frydenberg’s recovery plan, set to be delivered with the budget in October, while the first phase will focus primarily on boosting business and consumer confidence through targeted fiscal support and structural economic reforms.
“With historically low interest rates, it is not necessary to run budget surpluses to stabilise and reduce debt as a share of GDP – provided the economy is growing steadily,” Mr Frydenberg said.
“And even though debt will be at much higher levels than we are accustomed to, it remains sustainable and will be put back on a steady path of reduction.”
Mr Frydenberg also warned that Australia’s future population will be “smaller and older” than previously thought because of a sharp drop in overseas migration, leading to decreased productivity and workforce participation.
“These changes to the underlying economy, which stem directly from the COVID recession, will weaken our medium-term budget position, even as our targeted policy support is phased out,” Mr Frydenberg said.
“We very carefully designed our policy support so that measures would not weaken our budget in a structural sense. We wanted our support to flow now, when it’s needed most and not to become a structural drag on the budget.”
