Government’s economic update on the way in the face of Omicron COVID variant

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The federal government will use today’s mid-year budget update to lay out the beginnings of a re-election pitch centred on economic recovery, but it comes with warnings the Omicron variant could wreak havoc on those plans.

Today’s figures include upgraded forecasts for job creation over the next four years, and suggestions unemployment will fall to its lowest level since 2008.

The government expects that will place more pressure on wages to steadily rise.

After the Prime Minister used a speech earlier in the week to talk up an “economy primed for growth”, Treasurer Josh Frydenberg is now framing the recovery in very political terms.

“The Labor Party has repeatedly said, ‘the biggest test of this government’s management of the recession and its aftermath will be what happens to jobs’, and, ‘whether or not unemployment stays too high for too long’,” he said.

“Only the Labor Party will be disappointed by the strong labour market outlook presented in MYEFO after years of talking down the economy as Australia recovers from this once-in-a-century pandemic.”

But economists are sounding warnings that the economic recovery relies on the pandemic remaining reasonably under control.

New South Wales on Wednesday recorded its highest daily case numbers in months, including more than two dozen Omicron cases, but went ahead with a planned easing of restrictions.

Deloitte Access Economics’ Chris Richardson said it is a fairly straightforward equation.

“If you can stay ahead of COVID, the economy recovers beautifully,” he said.

He said the Omicron variant has the potential to do plenty of harm if it turns out to be more severe than expected.

“If it’s not mild, if Omicron or a later mutation forces us back into long and lengthy lockdowns, despite our vaccinations, then the economy’s back in trouble and the budget is back in trouble,” he said.

Opposition warns wage gains might not be enough

Labor expects the budget update to show the economy recovering strongly, but says there is little room for complacency after previous turnarounds ended in more lockdowns and a recession.

Shadow Treasurer Jim Chalmers said another concern is the cost of living rising alongside wages and leaving workers worse off.

“We want to make sure that as the economy recovers, Australian working families aren’t getting absolutely smashed by the skyrocketing cost of living at the same time as their real wages are going backwards,” he said.

“It’s not a real recovery if working families in this country are going backwards.

“It’s not a real recovery if Australian working families get to the other side of this valley and all they face then is declining real wages and the skyrocketing costs of living.”

Job creation, wage increase on horizon

Today’s update is expected to predict that by June 2025, an extra 1 million people will be in work, an increase of 150,000 jobs that was forecast in this year’s budget.

Mr Morrison made a similar promise before the 2019 election, saying at the time that if the Coalition was re-elected, it would create 1.25 million jobs over five years.

The unemployment rate hit a six-month high in October at 5.2 per cent when thousands of people re-entered the labour force to start looking for work ahead of lockdowns easing.

But Treasury is forecasting that the unemployment rate will fall to 4.5 per cent in the June quarter next year and again to 4.25 per cent in the June quarter of 2023.

As for people’s take-home pay, Treasury’s latest update is also predicting that wages will rise every year for the next four years.

According to its modelling, on average a person working full time could see an increase of $2,500 a year till 2024-25.

The government has also announced it is putting another $500 million into its National Housing Finance and Investment Corporation, which gives out low-cost loans to organisations that provide community housing.

Prime Minister Scott Morrison said the extra funds would support 2,500 social houses.

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By political reporters Tom Lowrey and Georgia Hitch (Original ABC Article)