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Increasing JobSeeker payments is ‘sustainable’, new study reveals

JobKeeper will be extended, but not necessarily to the same workers.

JobKeeper will be extended, but not necessarily to the same workers. Photo: Getty

New modelling from the Bankwest Curtin Economics Centre shows increasing JobSeeker payments by $100-a-week would be easily affordable.

Increased payments would also flow back into the economy, stimulating business and creating much-needed jobs to soak up rapidly growing unemployment.

Alan Duncan, director of the Bankwest Curtin Economics Centre (BCEC) told The New Daily a $200-a-fortnight increase to the base JobSeeker rate – currently $565.70 a fortnight – will cost government $3.77 billion over six months.

Over a full year, taxpayers would spend approximately $7.75 billion more.

On the surface that sounds like a lot of money, but Mr Duncan noted it represents only a 4 per cent increase on budgeted social security and welfare expenditures for the 2020-21 financial year.

What’s more, that money is not “going into a black hole,” he said.

People are seen in long queues outside the Centrelink office in Southport on the Gold Coast, Monday, March 23, 2020. Centrelink offices around Australia have been inundated with people attempting to register for JobSeeker.

New modelling shows government can afford a $100 a week JobSeeker boost. Photo: AAP

“In the context of committed spending in other areas of welfare support these sorts of figures are sustainable, and of course you get a return,” he said.

“One should not think of an increase to JobSeeker as putting money down a hole – it’s not.

“It cycles around and alleviates pressure in other areas of support services that might be burdened now by the number of people in difficult financial circumstances.”

Buying out of a longer recession

Grattan Institute household finances program director Brendan Coates agreed the additional spending would be affordable in the near term.

In the longer term, Mr Coates said, putting more money in the hands of unemployed Australians will even help reduce the overall unemployment rate.

That’s because the money is immediately pumped back into the economy to pay for essentials, rather than being hoarded in savings accounts.

“At a period when aggregate demand is very weak and the economy is running well below its potential capacity because households and businesses aren’t spending, it will have the effect of stimulating the economy and boosting GDP,” he said.

As a rough rule of thumb, Mr Coates said every 1 per cent increase in GDP above expectation will bring unemployment down 0.4 per cent.

The official unemployment rate hit 7.1 per cent in May, but this data only reflects out-of-work Australians still looking for jobs.

income bank

Unemployment has skyrocketed. Photo: AAP

Generous but temporary support programs (including a supplement for JobSeeker recipients which effectively doubles their fortnightly payments) are believed to have distorted those figures.

More recent data from Roy Morgan suggests the real rate of unemployment is closer to double the ABS data – with 14.5 per cent of the workforce now unemployed.

“JobSeeker is going to cost government a lot more than it normally would have even if we don’t raise the rate because unemployment’s gone through the roof,” Mr Coates said.

The coronavirus supplement only inflates that cost further, but Mr Coates said this is partly offset by the extra tax receipts government will earn through heightened consumer spending.

“This isn’t self-funding stimulus, the deficit will be larger,” he said.

“But in the long run it doesn’t mean substantially higher debt or unsustainable debt because the interest rate is very low.

“And as former IFM chief executive Olivier Blanchard said, you shouldn’t worry about debt sustainability provided interest rates are below the rate of growth in the economy.”

That’s because if interest rates are less than the economy’s growth rate, debt falls as a share of GDP over time.

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