Grattan: Give $10b of welfare to temporary visa holders

The Grattan Institute has released a new report urging the federal government to inject $70 billion to $90 billion of additional stimulus into the economy in order to boost growth and soak up the unemployed:

Over the past three months, the Federal Government has announced an unprecedented fiscal injection of $136 billion (about 7 per cent of GDP) to support businesses and households through the COVID-19 shutdown.34 This amounts to more than $5,300 per Australian, on par with responses in other developed nations (Figure 3.3)…

The single largest component of the Government’s fiscal response is the JobKeeper wage subsidy program, which provides support to workers via their employers, at a cost of $70 billion over six months…

JobKeeper and the temporary doubling of JobSeeker have gone a long way to insulating Australians – particularly low- and middle-income households – from the economic costs of COVID-19…

Under current arrangements, Australia faces a ‘fiscal cliff’ as the additional $14 billion per month (almost 9 per cent of GDP) in emergency income support through JobKeeper and the higher rate of JobSeeker are almost simultaneously cut off…

Fiscal and monetary policy should aim to restore economic activity to its potential level over the next 18 months to two years. This will involve reducing unemployment to its lowest sustainable level, and restoring inflation and inflation expectations to at least 2.5 per cent. Without fiscal and monetary stimulus, aggregate demand is highly unlikely to be sufficient to achieve these goals…

Australian governments should be prepared to introduce substantially more fiscal stimulus policies to boost aggregate demand…

Based on current economic forecasts, returning the economy to full employment will require sizeable fiscal support: in the order of $70-to-$90 billion in additional stimulus over the next two years, equivalent to around 3-to-4 per cent of GDP.91 Such stimulus should be deployed with an aim to reduce the unemployment rate by about 1.5 percentage points below current forecasts by June 2022. This could mean between 430,000 and 510,000 extra Australians back in work by mid-2022…

The Federal Government should announce extra economic stimulus – including spending on social housing and shovel-ready maintenance and infrastructure projects – in or before the October Budget, with the goal of getting hundreds of thousands of Australians back to work and dragging unemployment back down to about 5 per cent by the middle of 2022.

JobKeeper should be expanded to include university staff, casual workers, and temporary migrants, and extended beyond September for businesses that are still in strife.

The permanent rate of JobSeeker should be increased by at least $100 a week, and Commonwealth Rent Assistance should be increased by 40 per cent.

The Child Care Subsidy should be raised to 95 per cent of costs for low-income households, to cushion the shock to family budgets as parents start paying for childcare again, and to reduce financial barriers for parents taking on more paid work.

MB wholeheartedly agrees with Grattan that massive further stimulus will be needed to support jobs and growth. However, we disagree on some of the finer details.

For example, rather than extending JobKeeper, JobSeeker should be maintained at its current elevated level of $1,100 a fortnight until the labour market returns to ‘normal levels’, and then be lifted permanently by $95 a week (as advocated by ACOSS).

Maintaining JobSeeker at $1,100 would provide an adequate universal social safety net that catches anyone left unemployed. It is also far less distortionary than JobKeeper, which misses a wide variety of businesses and has been routinely gamed.

JobSeeker is a genuine social safety net, whereas JobKeeper is a convoluted program that benefits some businesses over others, can be manipulated, and hides the true extent of unemployment.

Second, we strongly disagree with providing temporary migrants with JobKeeper.

According to Grattan’s own estimates, extending JobKeeper to temporary migrants could cost taxpayers $10 billion:

There are many reasons to extend JobKeeper to temporary visa holders. These visa holders are not eligible for the normal safety net payments such as JobSeeker, and in many cases there are no affordable options for them to return to their home country.

Leaving people ‘high and dry’ leaves them in poverty, damages Australia’s reputation as a good global citizen, and makes it harder to attract skilled workers and international students in future…

It also means that JobKeeper is a far less generous scheme for those businesses in sectors that rely more on temporary visa holders – including hospitality, retail, healthcare, and aged care.

If temporary visa holders go on the scheme proportionally to residents, then including them for six months would cost about $10 billion.

In addition to costing a fortune, extending JobKeeper to temporary migrant workers would incentivise them to stay in Australia to compete against locals for scarce jobs.

This completely contradicts the initial purpose of Australia’s temporary migration program, which was developed to help plug “skills shortages” across the economy.

Temporary visas were also marketed as giving the economy flexibility: the migrant intake could quickly expand when skills were needed but then in times of strife those on temporary visas could return to their home countries.

Temporary visas were supposed to act as a shock absorber for the Australian economy.

Now that the Australian economy is facing its biggest decline since the Great depression, and labour underutilisation has surged, it is time for this “flexibility” to be allowed to take effect and a large chunk of the 2 million-plus temporary migrants in Australia to return home.

Keeping so many temporary visa holders in Australia would only worsen the unemployment queues and further depress wages, smashing Australia’s working class.

The migrant workforce should never have been allowed to grow so large in the first place. It must be allowed to fall away with the economic cycle.

If the Australian Government can work with universities to charter flights to bring international students into Australia, it can also work with embassies to charter flights to repatriate foreign nationals.