One of the biggest failures of last night’s federal budget was that it failed to permanently lift the rate of JobSeeker from its poverty rate of around $40 per day.
This means that Australia still faces a gaping welfare cliff once the temporary JobSeeker coronavirus supplement is unwound from 31 December, alongside the scheduled abolition of JobKeeper at the end of March, which will push many of those recipients onto JobSeeker.
The JobSeeker supplement was already lowered in late-September from $550 per fortnight to $250 per fortnight. And from 1 January 2021, the supplement is to be removed altogether, thereby returning JobSeeker to its old rate of around $40 a day – well below the poverty line:
According to Deloitte, this reduction in the JobSeeker coronavirus supplement will hammer demand and could cost 145,000 full-time equivalent jobs over two years and reduce GDP growth by $31.3 billion.
The situation is compounded by the scheduled abolition of JobKeeper.
JobKeeper has already been reduced from $1500 per fortnight to $1200 per fortnight for those working more than 20 hours per week, and from $1500 per fortnight to $750 per fortnight for those working less than 20 hours per week.
From 4 January, JobKeeper is scheduled to reduce again to $1,000 per fortnight for those working more than 20 hours per week and to $650 per fortnight for those working less than 20 hours per week.
Then from 28 March, JobKeeper is scheduled to end altogether, thus pushing unemployed recipients onto the $40 a day JobSeeker payment.
Last night’s federal budget ensured that the welfare cliff facing Australia remains, which threatens to punch a massive hole in the economy.
According to the Grattan Institute, income support will fall from $18 billion a month (10.7% of monthly GDP) to $3 billion a month (1.9% of GDP) for the six months beyond:
Moreover, with the deadline for withdrawing superannuation also set for 31 December and mortgage repayment holidays nearing their end, household disposable incomes will be drained even further.
For its part, UBS estimates a similar collapse in emergency support:
The upshot is that by failing to provide adequate income support to Australia’s army of unemployed, as well as failing to boost public building and infrastructure investment, the Australian economy will faces a gaping demand deficit and output gap, meaning the economy will remain weaker for longer.
Treasurer Josh Frydenberg kicked an own goal last night by failing to bolster demand.
