UBS: Fiscal cliff still massive

Via the excellent Geroge Tharenou at UBS:

JobKeeper extended by 6 months to Mar-21, but tapered, worth extra ~$16bn
The Australian Government announced a six month extension of the JobKeeper wage subsidy, which was due to expire at the end of Sep-2020, to March-2021. This is a longer extension than flagged by previous Government comments, and hence a bigger fiscal stimulus than UBS expected (and probably more than most had predicted). However, the Government still significantly tapered the program. The payment rate will change from a flat $1,500 per fortnight for all on JobKeeper until the end of Q3-2020 – which currently covers 3.5mn people (or a ~30% share of pre-COVID employment) – to a new 2-tier system, which will be phased out over coming quarters. For Q4-2020, the new higher rate is now $1200/fortnight for those working 20 hours or more per week; as well as a lower rate of $750 for those working less than 20 hours. Then in Q1-2021, the rates will be reduced again to $1000, and $650, respectively. The changes are especially designed to limit the estimated one-quarter of those on JobKeeper who have been receiving an average $550 more than their prior wage (compared with their wage from the single employer paying the JobKeeper – albeit the actual incidence is less given many of these workers are casual and/or part-time and work multiple jobs). Meanwhile, the business eligibility test was also tightened from a ‘once-in-all-in’ approach – which previously meant all businesses automatically qualified for the full initial period of 6 months based on projected turnover – to a new quarterly assessment based on actual turnover remaining down continuously each quarter (compared with the pre-COVID level). However, the threshold amounts are unchanged at -30% for small businesses with annual turnover of $1bn or less; and -50% for large businesses with turnover >$1bn (and -15% for NFP’s). This 2nd phase of JobKeeper is expected to cover 1.4mn employees in Q4, and 1.0mn in Q1 (vs ~3.5mn now). The extra cost is $16bn, of which we estimate ~$10bn is in Q4 and ~$6bn in Q1 – with the total cost of JobKeeper now $86bn (was $70bn).

JobSeeker extended 3-months to Q4, but a reduced rate, albeit costing ~$3.8bn
Elsewhere, the JobSeeker COVID supplement payment was also reduced to $250/fortnight for Q4 (compared with $550 from Q2 until the end of Q3), reducing the total JobSeeker amount from ~$1100, to ~$815. (It will then be reviewed again later this year, for a likely further temporary and/or permanent increase.) However, the income free threshold for those on JobSeeker was increased to $300, albeit the ‘mutual obligation job search test’ and asset/means tests were reintroduced. The extension of the JobSeeker top-up will cost $3.8bn extra, raising the total cost to $18bn.

JobKeeper/Seeker extension reduces policy cliff, but still large ~$84bn in Q4
The extension of JobKeeper and JobSeeker announced today is worth a combined ~$20bn, or ~>1% of annual GDP, albeit concentrated in Q4. Hence, this reduces the downside risk for growth and employment in Q4. We have been particularly concerned that the end of JobKeeper could have driven a 2nd wave of job losses, with UBS analysis of ACA data showing that 48% of SMEs saying they were likely to reduce employees if JobKeeper payments were not extended. The extension reduces the ~$100bn q/q policy cliff we had flagged in Q4, but it is still very large around ~$84bn or 17% of quarterly GDP.

David Llewellyn-Smith

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