A Record Boost for the Economy
On Monday Scott Morrison announced the biggest expenditure package ever delivered by an Australian government. This comes at a time when the Organisation for Economic Cooperation and Development (OECD) forecasts that the Australian economy will contract by 22% this year. This is less than most other OECD economies.
The OECD analysis says that the majority of the cuts will come in face to face service industries such as airlines, accommodation and food services, tourism, arts and recreation and real estate.
The estimates do not take into account the recently announced health and economic interventions which will reduce the negative impacts of the policies. The estimate by the OECD is that stringent social distancing measures, such as are imposed in Australia at the moment, cost an economy 2% for every month they are left in place. Their modelling assumes that it will be 11 months before a vaccine is approved for mass immunization however the policy in Australia is that the current measures will be in place for a month and will then be reviewed. If the measures remain in place for 3 months then the hit to GDP will be approximately 6%.
Monday’s economic package is designed to keep the economy ticking over for six months with the hope that it will rebound after that and the virus will by then be under control.
In his announcement on Monday the Prime Minister said that this was “a time to dig deep”. He said his government had taken a decision that no other government had had to make and he hoped no government would ever have to make again.
He announced that the Government would commit $130 billion over the next six months to keep Australians in a job. This would support 6.5 million employees to keep working. Every Australian worker will be treated the same. The program will be known as the ‘job-keeper package’ and will complement the ‘job-seeker package’.
The job-keeper package will provide a $1500 a fortnight subsidy for every employee kept on the books. It will be available for full and part-time workers, sole traders and casuals who have worked for 12 months. To be eligible the turnover of the business has to have fallen by 30% or more and 50% for businesses with a turnover of more than $1 billion. The payments will start from the first week in May and will be backdated to Monday. This means that employers can continue to pay employees from that day and they will be reimbursed by the tax office. The payment is not subject to the superannuation guarantee levy and can be topped up by the employer. The program is retrospective to March 1 so people employed on that date are eligible for the subsidy.
The payments will be delivered through the Australian Taxation Office who will use the single touch payroll system to monitor the payments by the employers to the employees. There are still question to be resolved about how the subsidy interacts with the award system.
In addition to these changes there have been changes to the job-seeker package. The threshold for partner incomes, before eligibility for job-seeker payments cuts out, has been increased from $48,000 to $78,000.
The $130 billion package together with the previous two packages adds up to $200 billion. This is a staggering amount of money for a Government to pump into an economy in six months. It is an administratively better system than has been developed in New Zealand and proposed in Europe including the United Kingdom but it has its issues. Eventually the debt will have to be paid for which will leave successive governments with a headache for many years.