Australia’s economy will take much longer to recover if the government refuses to spend the $60 billion saved through undersubscription to the JobKeeper wage subsidy.
The Coalition on Sunday doubled down on its framing of the bungle as cost saving and “good news” for taxpayers.
But prominent economists have told The New Daily the windfall must be spent to prevent another wave of job losses.
“Maybe we’re not looking at a 10 per cent drop in GDP, maybe we’re looking at 5 per cent, but that’s still significant – so the economy still needs support to get going again,” said Angela Jackson, an economist at Equity Economics.
Labor has called on the government to extend the scheme to the more than one million casual workers who were deemed ineligible.
That had the support of University of Melbourne economics professor Chris Edmond, who said it would be “unconscionable” if JobKeeper was not extended to those who had so far missed out during the pandemic.
But Ms Jackson said whether the money should be used to extend the scheme, or instead pumped into other areas of the economy, would depend on the reasons for the $60 billion discrepancy.
She said it remained to be seen if fewer Australians had signed up because the economy was doing better than expected, or because the JobKeeper application process was too confusing.
‘Underspending causes more unemployment’
The Australian Bureau of Statistics revealed on Tuesday that businesses had axed more than 900,000 jobs between March 14 and May 2, as social distancing measures shut down entire industries.
Days later, Treasury secretary Steven Kennedy told a Parliamentary hearing that Australia had gone “well past the word recession” and likely had an unemployment rate more than double the official headline figure of 6.2 per cent.
Dr Kennedy said government had successfully managed the health crisis but would need to provide ongoing fiscal support as “there won’t be any more cuts in interest rates coming down the track”.
Given the Reserve Bank expects economic output to fall 10 per cent during the first half of 2020 alone, many economists have also called for more government spending to support growth and minimise job losses.
“Treasurer [Josh Frydenberg] says that his $60 billion error is good news for taxpayers. No [it’s] not. It’s bad news,” Australia Institute chief economist Richard Denniss said on Twitter.
“The point of stimulus is to pump [money] into the economy to fill the hole caused by a shrinking private sector. Underspending on stimulus causes more unemployment.”
Given the scale of the unfolding economic crisis, the Australia Institute was urging the government to borrow and invest more money into the economy even before the announcement of the JobKeeper bungle.
The think tank argued that the coming hit to consumers and businesses will be so large that only government can lead the recovery.
Nervous and cash-strapped consumers will likely keep their wallets firmly shut as restrictions ease, and lingering economic uncertainty will cause businesses to defer and delay investment.
“In short, the government’s approach of ‘temporary and targeted’ stimulus needs to evolve quickly into an approach that is ‘structural and sustained’,” the Australia Institute wrote in April.
“In addition to the short-term welfare, cash flow and wage subsidy measures that have already been announced, the government also needs to provide ongoing support to the structure of the economy.”
The Australia Institute has put forward a list of economic policies aimed at increasing demand and rebuilding employment – with mass tree planting and “urban beautification” projects awarded particularly high marks.
Progressive think tank Per Capita argues the government could afford to launch such projects as interest rates are at record lows, the government can roll over its debt indefinitely, and the “virtuous circle of public investment leads to higher wages … and thus to a broader tax base”.
The $60 billion question
Whether government should use the $60 billion windfall to extend JobKeeper to more workers, or invest it in other areas of the economy, depends on the reasons for the scheme’s undersubscription, according to Ms Jackson.
If the scheme is undersubscribed because the economy is doing better than expected, then the money should be put towards reskilling programs, infrastructure spending and building social housing.
But if the scheme is undersubscribed because applying for the scheme was too complicated, then Ms Jackson said the wage subsidy should be simplified and extended to workers who are currently excluded.
Either way, Ms Jackson said the government will have to announce more economic stimulus as people return to work as “the recovery is still going to be very difficult”.
Meanwhile, market economists such as AMP Capital’s Shane Oliver have also urged the government to inject the $60 billion back into the economy.
“[The lower take-up] means that the fiscal stimulus will be $60 billion, or 3 per cent of GDP, less than originally announced, which could mean a less robust recovery than had been expected on the basis of that stimulus,” Dr Oliver said in a note to clients.
“However, the ideal response would be for the $60 billion saving to be used to relax some of the criteria to access JobKeeper and to extend it for those who need it.”