SYDNEY--The Australian government has thrown out its long-held fiscal strategy of pursuing budget surpluses, replacing it with a goal to push the unemployment rate sustainably back below 6% over time, while warning that austerity measures and higher taxes now would stall the economic recovery.
The revised fiscal strategy, to be fully outlined in the government's budget on Oct. 6, will support demand and job creation, Treasurer Josh Frydenberg said in a speech to business leaders Thursday.
"Our previous fiscal strategy has served us well... but it would now be damaging to the economy and unrealistic to target surpluses over the forward estimates, given what this would require us to do in terms of significant increases in taxes and large cuts to essential services," he said.
The resource-rich economy contracted by a record 7% in the second quarter from the first quarter due to lockdowns to contain Covid-19. Mr Frydenberg said the damage to the economy would be long lasting, eroding the budget for some time.
The government will allow so-called automatic stabilizers to work freely to support the economy, with the second phase of the plan set on providing fiscal support, including through tax measures, to grow private sector jobs and investment, Mr. Frydenberg said.
The unemployment rate fell to 6.8% in August, but economists expect it to rise over time as the economic recession results in the permanent closure of some firms and employers remain reluctant to hire.
Mr. Frydenberg didn't say when he expects the unemployment rate to again be sustainably below 6%.
Write to James Glynn at james.glynn@wsj.com
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