The Treasury has forecast effective unemployment will increase to more than 13% during the September quarter.
The most recent unemployment figures from the Australian Bureau of Statistics revealed more than 1 million Australians were unemployed in July with an unemployment rate of 7.5%.
However, the effective unemployment rate sits at 9.9%.
Writing in The Australian, Treasurer Josh Frydenberg said the COVID-19 pandemic had been a shock to supply and demand like no other.
"Significant falls in business investment, housing investment and household consumption are all expected to be confirmed in next week’s National Accounts," he wrote.
"And there’s a hit to the nation’s balance sheet as the budget deficit hovers around $200bn this year, off the back of record government support and declining revenue."
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Amid the new forecasts, The Australian Council of Social Service (ACOSS) CEO Dr Cassandra Goldie has called for a permanent increase to JobSeeker payments.
“There are 2.3 million people facing the $300 per fortnight cut on September 25 unless Parliament acts in these two weeks," Dr Goldie said.
"Troublingly, more than 1.1 million children are living in households that stand to have their incomes cut on 25 September.
"At the same time, there is only one job for every 12 people on JobSeeker or Youth Allowance, borders continue to be closed, and Victoria continues to endure a long, necessary lockdown that is really tough on people and taking a toll on jobs.
"As well as being a health crisis, this is an unemployment crisis."
JobSeeker currently pays recipients $565 a fortnight as well as a $550 coronavirus supplement.
From September 25 the supplement will be reduced to $250 a fortnight but recipients will be able to earn up to $300 of their own income without penalty.
Mr Frydenberg said the economy was fighting back and the job market was showing a marked improvement, but there was a stark contrast between Victoria and the rest of the nation.
"In June and July, more than 340,000 jobs were created, about 58% going to women and 44% to people aged 15-24," he said.
"Outside Victoria, the number of people on unemployment benefits is about 3% below the peak in May. In Victoria, it’s 3% above.
"In April, Victorians made up about 30% of those stood down on zero-hours across the country. In July, it had risen to about half.
"Victoria saw its participation rate fall in July, the only state to do so."
With Parliament set to resume today for two weeks, Dr Goldie called on the government to support those who wouldn't be able to pay for basics like housing and food if JobSeeker was wound back.
"In this Parliamentary sitting, the Government must urgently deliver a permanent, adequate increase to JobSeeker and other income supports so that people can have security to cover the basics whilst they rebuild their lives," she said.
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