The federal budget on March 29 will contain further measures to help families deal with rising living costs, but the Treasurer says the age of open spending sparked by the pandemic is coming to an end.
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Josh Frydenberg will gradually start moving to paying down the massive debts incurred over the pandemic, and will reveal that total debt will peak lower than forecast last December.
"The time for large-scale economic stimulus is behind us," Josh Frydenberg is expected to tell the Australian Chamber of Commerce and Industry in a major economic speech ahead of his fourth federal budget.
The budget will reduce pressure on households in a "targeted and proportionate way" while easing back the high-spending ways that saw the economy bounce back from the brink of recession, he will say.
"Cost-of-living pressures are real," according to draft excerpts from his speech. He will speak of getting the balance right and not making sharp and sudden cuts that put the economic recovery at risk.
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The Treasurer will say the government's fiscal strategy worked and it must draw some clear lines now that Australia's unemployment rate is at 4 per cent, there has been a more than a 45 per cent rise in job advertisements on pre-COVID levels, and December growth is at its strongest in four decades.
Any further large-scale support would be putting further pressure on inflation, interests and cost of living, Mr Frydenberg will argue.
"Crisis-level economic support must not become entrenched. With our tight labour market and our strong economic recovery, continued support at those levels would do more harm than good," he will say.
Debt as a proportion of the size of the national economy will peak lower and earlier than was forecast in the mid-year economic outlook, he will reveal. The budget will forecast that gross debt will stabilise and decline over the medium term.
This debt-reduction will allow the economy to continue to grow if done in a gradual and measured pace, Mr Frydenberg is expected to say, citing the six times in the past century that Australia has sustainably reduced its Commonwealth debt as a share of the economy - after the two world wars, the Great Depression and following the recessions in the 1970s, 1980s and 1990s.
"The consistent lesson from these successful fiscal consolidations is that they are almost always achieved gradually, and are underpinned by a strong economy and genuine fiscal discipline," he is expected to say.
"A sharp and sudden tightening in the fiscal settings would likely be counterproductive, undermining the economic recovery and ultimately hurting the budget. We do not want to put at risk the hard-fought gains we have made."
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While not revealing all the budget's secrets, Mr Frydenberg will point to key ways the government has already attempted to reduce cost-of-living pressures, including efforts to drive electricity prices down and investments in childcare. Through the pandemic the government forwent seeing the budget return to the black with big support packages, including around $30 billion in tax relief for low- and middle-income earners.
The Treasurer will also reveal that his budget has conservative assumptions about the price of commodities like iron ore and coal.
Thermal and metallurgical coal exports are currently selling at more than 50 and 60 per cent higher than previous record highs seen at the end of the last year. But these are temporary revenue increases and should not be baked in to budget forecasts, Mr Frydenberg is expected to say.