SYDNEY - Australia's ruling coalition is set to abandon its long commitment to economic conservatism and is instead pushing for big spending and high debt to try to propel the nation's recovery.
In a further sign of how the Covid-19 pandemic is upending political certainties around the world, the Liberal-National Coalition, which has long styled itself as a bastion of debt-fearing fiscal conservatism, is expected to use its federal budget next Tuesday (May 11) to deliver lavish amounts of spending on healthcare, childcare and social services as well as offering new tax breaks.
Despite unemployment being much lower than previously feared - at about 5.6 per cent in March - the Coalition now wants to push it permanently below 5 per cent, a level it has not sat steadily at in more than 40 years.
Federal Treasurer Josh Frydenberg outlined his plans in a recent speech, in which he rejected moves towards belt-tightening or "austerity". Instead, he appeared to adopt an economic vision - typically associated with the left - based on the government actively intervening to boost employment and growth.
"We won't be undertaking any sharp pivots towards 'austerity'," Mr Frydenberg said.
"The best way to repair the budget is to repair the economy."
Before the pandemic, Australia had enjoyed a world-beating 28 years of economic growth. The nation endured a recession last year but has emerged faster than expected, as stimulus measures helped to protect jobs and boost confidence and spending. The property market is now soaring, job listings are growing, consumer sentiment is at an 11-year high, and gross domestic product is on track to grow this year by about 4.5 per cent.
The country is largely free of locally transmitted cases of Covid-19, though heavy travel restrictions continue to hurt the tourism and international education sectors.
After the global financial crisis of 2007-08, the Coalition insisted that the then ruling Labor party's big-spending stimulus measures had led to a wasteful "mountain of debt" that would take years to repay.
But the Coalition, which has been in power since 2013, has taken a different approach to the current economic challenge, signalling that it is no rush to rein in spending and debt.
Commentators have described the Coalition's approach as a "radical departure" from its previous insistence that budget surpluses were the key to fixing the economy.
"Frydenberg's new budget strategy is a repudiation of the Coalition's old argument. A complete reversal in logic," wrote business reporter Gareth Hutchens on the ABC News website.
"The Coalition is continuing to slowly turn its back on some of the economic arguments it has been making for decades."
Following Mr Frydenberg's anti-austerity speech, political commentator Laura Tingle observed in The Australian Financial Review: "Just like that! All the things that Labor had said in the (global financial crisis) - for which it had been relentlessly attacked for profligate spending - were suddenly all the Coalition rage."
But the Coalition's uncharacteristic approach has been backed by the bulk of economists, who said record low interest rates and low wage growth meant there was a rare opportunity to push unemployment to record lows without risking wage or inflation surges. Inflation for the year to March was at just 1.1 per cent, well below levels at which the central bank would typically consider lifting interest rates.
A survey of 60 Australian economists by the Economic Society of Australia and The Conversation found that more than 60 per cent supported a push unemployment below 5 per cent.
University of New South Wales economist Richard Holden said the central bank had no ability to push interest rates any lower, leaving it for the government to use taxes and spending to stimulate the economy and provide jobs. He noted that the coming budget is likely to be the last before the next federal election, giving an additional political impetus for the Coalition to focus on spending rather than saving.
"Continued fiscal support is vital to get economic growth up, unemployment down and real wages moving again," Prof Holden wrote on The Conversation website.
"So the treasurer not only has electoral incentives to do the right economic thing but the economic data to support that move."