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Whatever it takes

Weekly economic briefing

Globally it’s clear that COVID-19 is sending economies into a deep dive. Even those who would normally hesitate at the thought of government intervention are calling for significant action.

The question is, what type of action?

Yesterday the Federal government announced a $130 billion package to subsidise the wages of Australian workers who have been hit by the public health crisis.

Through the Australian Taxation Office (ATO) from 1 May 2020, all eligible employers are to directly receive – and then pay – their retained employees at least $1,500 per fortnight, before tax.

A wage subsidy was needed, and Deloitte Access Economics had called for consideration of such a measure.

The scale is enormous:  the budgeted cost suggests this would go to almost half of all Australians with a job, at a cost equivalent to half the normal pre-crisis total Federal government spending over a six month period. That’s way above the initial thoughts that there may be up to a million jobs lost in Australia, though we don’t know how deep and long this crisis will go.

If it does end up costing anything like $130 billion it will be money well spent to support the economy. In this economic environment, almost all measures to support livelihoods and standards of living are good measures. Those who are forced out of work as a result of this pandemic are not to blame. The Federal government is playing its role of spreading the costs of the pandemic more equally across society (future generations of taxpayers will share the cost), and in doing so is maintaining as much economic continuity as possible now.

Will it be enough?

With any public policy measures – not one size fits all. Some workers and employers will get a better deal out of this compared to others due to the nature of the scheme – a one size fits all minimum wage-style payment.

An employers’ mix of stood-down staff, turnover rates, industry of operation and longevity – and structure – of the downturn will all play into who they apply to pay for and how they decide to keep staff employed.

Industries which are currently hit hard – such as hospitality and retail – are all likely to have higher proportions of casual staff, with higher turnover and seasonality in their workforce. This will matter. But they also have lower than average wages, making this more generous for harder hit sectors.

This could, in practice, make JobKeeper almost universally the minimum wage.

Both employers and their workers are already stuck between a rock and very hard place and this will be a lifeline for many – and the wage subsidy measure maintains that medium-term view to economic recovery.

Coupled with assurances (in some instances) and policies (in others) relating to moratoriums on lease evictions (personal and commercial); deferrals of payments on borrowings and mortgages; and the broader support measures from states, territories and the Feds, the wage subsidy measure might just be enough to induce the economic holding pattern Australia needs.

The wage subsidy is welcome – but we all need to keep our focus on the end game: slowing the spread of the virus, while helping to ensure our jobs and our economy can bounce back after the crisis.