Josh Frydenberg is stitching together a federal budget in the face of a whopping seven per cent collapse in economic activity.
More than one million people are unemployed and another 400,000 could join the dole queue before Christmas.
Frydenberg is planning to speed up income tax relief in the October budget to breathe life into the battered economy.
“If you put more money into people’s pockets there will be more spending and more spending will create jobs,” he told the Nine Network on Thursday.
But national accounts figures released this week show people are unable or unwilling to spend money during the coronavirus pandemic and are instead saving as much as they can.
The Treasurer believes easing social and business restrictions will give people the confidence to open their wallets.
“As the restrictions are eased over time there will be more consumption,” Frydenberg said.
He described the national economy as operating at two speeds.
“There’s Victoria and then there’s the rest,” the treasurer said.
“Outside of Victoria, the jobs are coming back.
“That’s why what happens in Victoria is so critical to the state’s recovery but also to the national recovery, because it goes right to that issue of confidence.”
Grim unemployment projections will weigh heavily on the federal budget.
The Reserve Bank expects unemployment to reach 10 per cent by the end of the year and believes it will still be around nine per cent by the middle of next year.
Frydenberg is setting his sights on funding major road and rail projects, along with pursuing workplace reforms, to restore jobs.
But despite the coronavirus crisis dragging on longer than first expected, he still plans to scale back JobKeeper and JobSeeker support payments at the end of the month.
Leading economists are bracing for a bumpy road to recovery.
The Victorian restrictions will weigh heavily on growth figures for the September quarter, which won’t be released until December.
Beyond that, lingering health concerns and the dialling back of coronavirus support measures will both play a role.
Business groups, including the Australian Chamber of Commerce and Industry, want the treasurer to pursue bold tax reforms.
“For too long tax reform has been in the too hard basket. It must be at the top of the reform agenda if we are to achieve strong, inclusive job-creating growth,” ACCI chief executive James Pearson said.
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