Hundreds of thousands of Australians will be pushed below the poverty line and unemployment will stay higher for longer when the fortnightly Coronavirus Supplement is cut by $100 at the end of the year.
Prime Minister Scott Morrison and Social Services Minister Anne Ruston told reporters on Tuesday it was important to reduce the unemployment benefit to encourage more people to get back to work.
But leading economists told The New Daily that cutting the payment at a time of rising unemployment would actually slam the brakes on the nation’s recovery and inflict untold damage on families.
Jobs will be further at risk because of the flow-on effect of stopping low-income Australians from spending extra cash, they explained.
And data from government agencies also disproves the theory that JobSeeker recipients could get a job if they only tried harder to find one.
In a press conference at Parliament House, Mr Morrison said his government had maintained throughout the pandemic that its stimulus response was only ever temporary and designed to “cushion the blow” of the recession.
He said the initial support policies, including JobKeeper and the Coronavirus Supplement, had achieved these stated aims and needed to be tapered down now the economy was reopening and employers were looking to fill positions.
The Prime Minister implied that the current rate of JobSeeker – which, including the Coronavirus Supplement, adds up to $815.70 a fortnight for a single person with no children – was so high that it was acting as a disincentive to work.
It will fall to $715.70 on January 1.
Official government data shows 1.6 million Australians were receiving either JobSeeker or Youth Allowance in September.
But separate figures from the Australian Bureau of Statistics show there were only 206,000 job vacancies in the country in August.
In other words, there were almost eight job seekers for every one vacancy.
Mr Morrison, however, cited rising numbers of job advertisements and improving consumer confidence as evidence that the economic recovery was well underway.
Data from Commonwealth Bank also shows that the easing of restrictions has encouraged consumers across the country to open their wallets, with credit and debit card spending over the week to November 6 up 13 per cent on the same time last year.
But Matt Grudnoff, a senior economist at progressive think tank The Australia Institute, said the government’s forecasts show the most important metric – unemployment – will keep rising and not reach its peak until December.
And so, Mr Grudnoff said, cutting benefits in January would deal a massive blow to consumer spending “at a time when unemployment is still rising and the economy needs more stimulus” to bring it back down.
“But, really importantly, it’s going to have individual impacts. And those impacts are that it’s going to push more families, including more children, into poverty,” Mr Grudnoff told The New Daily.
Days after the government announced the last extension and reduction of JobSeeker on July 21, Australia Institute modelling showed a $300-a-fortnight decrease would push 370,000 people into poverty – a figure that included 80,000 children.
Mr Grudnoff said Australians could expect a similar outcome when the government cuts the payment by a further $100 on January 1.
He explained how cuts were also going to “have an impact on the broader macroeconomy”.
Research shows that when governments give money to low-income households they hit the shops, whereas high-income households receiving benefits like tax cuts normally stow the cash in a savings account.
This is because people on the lowest incomes need the extra cash to pay for necessities they may have been putting off buying, such as school shoes, car insurance or health care.
“We know that the supplement has been really, really important – that people have used the Coronavirus Supplement to pay for things like going to the dentist,” Mr Grudnoff said.
They have used that money to buy and catch up on essentials.
“And now that the government is planning again to cut it, they seem to be working their way back towards the old rate of unemployment benefits – and this is going to have a devastating impact on individuals”.
The additional spending from low-income households receiving more benefits creates jobs for other Australians and eventually puts upward pressure on wages when unemployment falls below a certain point.
“So whenever unemployment is high, there is definitely a job for government and there is definitely a job for stimulus,” Mr Grudnoff said.
Asked what was holding the government back from increasing the permanent base rate of JobSeeker, Mr Grudnoff said it was “largely ideological”.
“The government is still concerned about debt and deficit even though the governor of the Reserve Bank has told the government not to worry about debt,” he said.
Meanwhile, Grattan Institute household finances program director Brendan Coates said the decision to extend the Coronavirus Supplement was “welcome” but cutting the rate was “misguided”.
Mr Coates said cutting the supplement would lead to more job losses and come at a time when government spending was more important than ever, as the Reserve Bank could no longer boost the economy by further cutting interest rates.
“The government’s concern would be both the cost, but also the disincentives for work search,” he told The New Daily.
“But the evidence from the US and elsewhere is that these temporary supplements to unemployment benefits have not really had the effect of reducing employment.
“Because whatever disincentive there is for work search is largely offset by the boost to employment from the extra spending going into the economy at a time when interest rates are at the effective lower bound.”