The under-utilisation rate, which combines unemployment with the percentage of people who want more hours, is at 13.8 per cent and starting to trend upwards.
Markets reacted immediately and now put the chance of an interest rate cut next month at one in three. Ahead of the meeting it was a 10 per cent chance.
The slowdown in the jobs market is being headed by NSW, which shed 36,000 jobs in the past two months including 10,300 in October. The unemployment rate, which reached a low of 3.9 per cent in January, is now at 4.8 per cent.
There are now 208,500 people out of work across the state, the worst result since February last year.
Victoria’s jobless rate edged up to 4.8 per cent with signs its stellar jobs growth of recent years is starting to slow.
The jobs report follows this week’s weak wages growth report which showed wages up by just 2.2 per cent over the past year. The federal budget had forecast wages to be growing by 3.25 per cent next year.
Mr Frydenberg, whose mid-year budget update next month will have to contain sharp downgrades to unemployment and wage growth forecasts, said the government remained committed to a budget surplus.
The Treasurer has to include extra spending for the drought and to aged care in the budget update, but Mr Frydenberg said the government was open minded on tax relief.
“We’re always looking for opportunities to reduce taxes,” he told Sky News.
Senior members of the government have been canvassing private sector opinions on the overall strength of the economy and how it may benefit from extra tax relief.
Victoria Premier Daniel Andrews said he had told Prime Minister Scott Morrison the economy was “softening”, arguing there was a need for federal stimulus.
“I’m not talking about multibillion-dollar projects that would take a decade to build, I’m talking about things you can do right now that would be good in and of themselves but would also make it more likely that people remained in work,” Mr Andrews said.
Major bank economists have urged the government to consider pulling forward its 2022-23 tax cuts, gradually introducing them over two years in a move that would protect the budget surplus while putting money back into the economy.
Westpac senior economist Justin Smirk said without further policy actions, unemployment could push up to 5.6 per cent by the middle of next year.
AMP Capital chief economist Shane Oliver said without fiscal stimulus, like tax cuts, the Reserve Bank, already under attack from some parts of the government for taking official interest rates to an all-time low of 0.75 per cent, will have to act.
“In the absence of fiscal stimulus soon, the pressure remains on the RBA where we expect to see another 0.25 per cent rate cut in December, quantitative easing … and more dovish forward guidance on rates,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
Matt Wade is a senior economics writer at The Sydney Morning Herald.