According to the latest estimates from the Treasury Department, real wages are expected to start growing slightly earlier and grow more strongly than previously forecast.
Higher wage growth projections and lower inflation projections in 2023-24 than in the previous budget are expected to bring forward real wage growth returns to early 2024. The October budget put the return at mid-2024.
But unemployment will rise in the coming year.
Tuesday’s budget forecasts real wage growth of three-quarters of a percentage point for the year to June 2024. This is half a percentage point increase since October’s budget.
The government says the improved forecasts from the Treasury Department show that Australia’s labor market is resilient.
Unemployment is expected to be 3.5% in the June quarter of this year, rising to 4.25% in the June quarter next year. This is an improvement of a quarter of a percentage point in both years since the October budget.
Unemployment is still expected to peak at 4.5%. But this is now expected to be achieved in 2024-25, compared to the last budget’s estimate that the peak would be in 2023-24.
The budget predicts an additional 500,000 jobs will be created by the June quarter of 2026. This is about 200,000 more than expected last October.
There has been speculation that this financial year could see the budget balanced or even in surplus. Treasurer Jim Chalmers would only say that there would be “substantial improvement in the near term”, but then the pressure on the budget would increase.
Chalmers said the substantial improvement was not solely due to higher commodity prices. “It’s also about lower unemployment and the start of wage growth.”
He said: “Growing wages again is central to our economic plan and budget.
“We are pleased to see signs that wages are rising,” he said.
“While this is a step in the right direction, we know that many Australians are still under the pump due to cost-of-living pressures and rising interest rates.
“A big part of tackling cost-of-living challenges is making sure ordinary Australian workers can earn enough to care for their loved ones and get ahead.
“We also understand that securing real wage growth means getting inflation under control and our Energy Price Relief Plan is already helping with this.”
The budget “will focus on targeted cost-of-living relief that does not add to inflation, getting wages back on track and laying the foundations for a stronger and more resilient economy”.
Chalmers announced Friday that the budget would include a program to address entrenched deprivation in certain communities.
There would be a series of “site-based initiatives to try to shift the needle”.
Chalmers said there was concern that even with low unemployment there were backlogs.
“We don’t want long-term unemployment. We don’t want to see deep-seated intergenerational deprivation.”
The $200 million program would support local leaders and organizations working to address the difficult social and economic challenges in these areas.
“That means partnering with philanthropic organizations, it means investing in local community groups, it means doing something meaningful about impact investing. There are a number of different parts of our strategy.”
He said, “To build the kind of economy we want, we need to align what we want to see in our economy with what we want to see in our society and in our communities.”
Australia, which generated remarkable opportunities for people at large, “needs to do a much better job of bringing those opportunities within the reach of more people”.
