Frydenberg Sets 6% Australian Jobless Threshold in Recovery Plan

(Bloomberg) -- Australian Treasurer Josh Frydenberg will use the Oct. 6 budget to start implementing a two-phase plan centered around boosting jobs and economic growth that hinges on unemployment falling below 6%.

The first phase will center on allowing “automatic stabilizers” to support the economy, providing targeted fiscal support including through tax measures, and implementing structural reforms, he said in a speech in Canberra on Thursday. Frydenberg didn’t identify the proposed reforms.

Then, when unemployment is “comfortably” back under 6% -- it currently stands at 6.8% and is expected to rise higher -- the second phase will kick in. That will maintain the focus on jobs, growth, and structural reforms, while creating a “deliberate shift” from providing stimulus during the pandemic to rebuilding fiscal buffers.

“The medium-term effects of Covid-19 have made it necessary to recalibrate the government’s fiscal strategy,” Frydenberg said. “We have a big mountain to climb. But this is an achievable goal. And it does not require us to increase taxes or reduce spending on essential services.”

Hit by lockdowns and state-border controls due to the coronavirus pandemic, Australia’s economy contracted by the most on record last quarter, pushing it into its first recession in almost 30 years. A planned recovery, driven by early lifting of restrictions and reopening of the economy, was derailed by a resurgence of the virus and renewed lockdown in Melbourne, the nation’s second-largest city.

The treasurer made clear the government will finance spending via debt rather than new imposts, pledging to maintain its 23.9% cap on the tax to GDP ratio.

The Oct. 6 budget falls on the same day as the central bank’s monthly policy meeting, and a growing chorus of economists predict rate cuts and additional measures to buttress the government program in a “Team Australia” initiative.

Bankruptcy Overhaul

Earlier, Frydenberg set out what he called the most significant insolvency law reforms in almost three decades in a bid to give more small businesses a chance to survive the recession.

Incorporated firms with liabilities of less than A$1 million ($705,800) will be able to keep trading while they develop a debt restructuring plan. That’s in contrast to current rules which can force small companies into immediate administration.

“This economic shock has been very severe and many businesses have had to close their doors, yet the bills have still been racking up,” Frydenberg said Thursday. He’s described the plan as adopting key aspects of the U.S. Chapter 11 bankruptcy process, moving from a rigid, one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model.

Frydenberg said in a statement that the A$1 million threshold covers about 76% of businesses subject to insolvencies today, 98% of which have less than 20 full-time employees.

The new process is expected to start Jan. 1.

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