SYDNEY, Sept 24 (Reuters) - Australia’s conservative government will abandon its long-held aspiration to return the budget to surplus as the country grapples with its worst downturn in about a century, Treasurer Josh Frydenberg said on Thursday.
Frydenberg had, last year, promised budget surpluses in coming years, but on Thursday said that would no longer be the “prudent” or “appropriate” course of action.
“It would now be damaging to the economy and unrealistic to target surpluses over the forward estimates,” Frydenberg said in a speech to the Australian Chamber of Commerce and Industry.
The government’s budget update is due on Oct. 6, where Frydenberg will announce a new fiscal strategy to boost jobs and growth.
The change in stance will be welcomed by the Reserve Bank of Australia (RBA) which is counting on solid fiscal stimulus to boost the economic recovery, having already slashed interest rates to a record low 0.25% and launched an “unlimited” bond buying programme.
The government has so far announced more than A$300 billion ($210.93 billion) in fiscal support, including a wage subsidy scheme, to cushion the economic blow from the coronavirus.
The country is in its first recession in three decades, with a recovery widely expected to be uneven and bumpy even though Australia has largely controlled the spread of the coronavirus and reopened its economy.
Policymakers expect unemployment to rise to about 10% from 6.8% in August. Frydenberg said the fiscal tap will remain open at least until unemployment falls “comfortably” back below 6%.
“Once we are confident that the recovery has taken hold, we will move to Phase 2 of our revised fiscal strategy,” which involves stabilising the country’s debt position and rebuilding fiscal buffers.
“We have a big mountain to climb,” he said. “But this is an achievable goal.”
$1 = 1.4223 Australian dollars Reporting by Swati Pandey; Editing by Kim Coghill
Our Standards: The Thomson Reuters Trust Principles.