Roughly 500,000 extra Australians will find jobs over the next two years if governments spend at least another $70 billion to stimulate the economy, according to the Grattan Institute.

In a new report released on Sunday, the bipartisan think tank argues the economy needs an extra cash injection of $70 to $90 billion – on top of the $160 billion announced already – to bring unemployment below 5 per cent by mid-2022.

It claims the extra spending “could mean between 430,000 and 510,000 extra Australians back in work by mid-2022”, arguing that many of the measures introduced during the pandemic should stay in place beyond their planned expiry dates.

Such measures include quarantine arrangements, social distancing requirements, telehealth, improved child care affordability, JobKeeper wage subsidies, and a higher unemployment benefit.

But that won’t be enough, the report warns.

The coronavirus will deliver the biggest economic shock to the country since the Second World War, so the government will have to announce further stimulus to lift the economy out of its slump.

Coronavirus support measures are scheduled to end in October. Graph: Grattan Institute

Among other things, the report argues for a 40 per cent increase in the rate of Commonwealth Rent Assistance, a social housing program similar to the Rudd-era Social Housing Initiative, and a three-month extension to JobKeeper for industries hardest hit by the pandemic.

“Australian governments urgently need to develop an economic transition plan to take us through the next six months,” Grattan Institute household finances director Brendan Coates told The New Daily.

We’ve been luckier and have managed the COVID-19 crisis better than most, but now we face arguably a more difficult phase.

“Which is to say that the health decisions are less clear cut, and now the government needs to put more support into the economy in order to avoid the fiscal cliff that we’ll otherwise have in October, and to support the economic recovery.”

Given interest rates are already at record lows, Mr Coates said governments have little choice but to announce more stimulus to support the economy on the long road to recovery.

Without additional support, unemployment will remain much higher for much longer than it otherwise would – inflicting avoidable economic pain on hundreds of thousands of Australians.

Grattan Institute is calling for an additional $70 billion to $90 billion of spending over the next two years.

“We’re always going to see restructuring in this period – we saw that with Qantas, we’re seeing that with Deloitte and others, which are shedding jobs,” Mr Coates said.

But what we want to do is support demand during this period so that transition, which is going to be painful, isn’t any more painful than it needs to be.”

Amid reports that the government will cut the increased JobSeeker payment from $1115.70 a fortnight to $715.70 a fortnight, or $150 above pre-pandemic levels, Grattan argues that JobSeeker must remain at its current level until at least the end of the year.

Otherwise, the collective income shock will undermine the recovery by eating into much-needed consumer spending.

The current rate of $1115.70 a fortnight, which includes a ‘coronavirus supplement’ of $550 a fortnight, should be gradually wound back from the beginning of 2021. But only if the unemployment rate starts to fall.

Meanwhile, JobKeeper should be extended for struggling firms and ended early for firms that have already recovered; expanded to include temporary migrants and casual workers; paid in advance rather than arrears; and reduced for part-time workers to $800 a fortnight.

Grattan argues the legislated increase in the superannuation guarantee from 9.5 per cent to 12 per cent of salary should also be abandoned as it will lead to weaker wages and thus “result in reduced consumer spending”.

And government should introduce a means-tested child care subsidy of 95 per cent of costs, and introduce intensive tuition programs for “disadvantaged students hurt by school shutdowns”.

Grattan says the extension of JobKeeper and JobSeeker, together with the intensive tuition program, would cost the federal budget an extra $30 billion over 2020-2021.

Australia’s pre-crisis unemployment benefit, Newstart, was the lowest in the OECD, according to Grattan analysis.

“On top of these emergency and long-term supports, additional discretionary fiscal stimulus of about $20 billion to $40 billion over the next two financial years – around 1 to 2 per cent of GDP combined – would be required to reduce unemployment by 1.5 percentage points, and return Australia quickly to something like full employment,” the report argues.

These measures include a permanent $100-a-week increase to the JobSeeker payment, the 40 per cent increase in Commonwealth Rate Assistance from October, and reforms to the child care subsidy.

Asked whether taxpayers – and especially younger Australians – should be worried about the government taking on so much debt, Mr Coates said the cost of inaction would be much higher.

“Naturally there’s concerns that further debt would place a [tax] burden on younger Australians, but even if there’s no long-term boost to GDP from the stimulus, the public debt boost by 2029-30 would only be 3 to 4 per cent of GDP – and the job-creating stimulus particularly helps the young who disproportionately bear the cost of high unemployment,” Mr Coates said.

“There are also few alternatives – structural reforms to boost growth are worthwhile and we should do them, but they don’t do as much to support growth and demand or create jobs in the short term.”