Let JobKeeper die

Economist Dr Cameron Murray has backed the government’s view that the JobKeeper wage subsidy scheme does not need to be extended again. Murray argues that relatively few industries still need government support, and he believes that increasing the JobSeeker payment would be a better option as the financial support would go to people who need it.

The Blueprint Institute’s chief economist Steven Hamilton also believes JobKeeper should be phased out on 28 March as scheduled.

From The New Daily:

Economist Cameron Murray said it made “total sense” to withdraw JobKeeper at the end of March.

A post-doctoral research fellow in the Henry Halloran Trust at the University of Sydney, Dr Murray said businesses were already flush with cash and only a few industries still needed support.

He said the turnover test for JobKeeper was “the biggest joke ever” as companies could “choose the time at which expenses and incomes are incurred” and consequently qualify for the payment without suffering an actual drop in turnover.

Lifting the permanent JobSeeker rate would therefore be preferable to extending JobKeeper, as the money would go directly to those who need it.

“I have no worries about [government] debt. I have no worries about inflation,” said Dr Murray, when asked why he thought JobKeeper should end on March 28.

“It’s just the upwards distribution of wealth.”

Equity Economics lead economist Angela Jackson and Blueprint Institute chief economist Steven Hamilton also agreed that the government should end JobKeeper in March.

According to the Australian Treasury, around $143 billion worth of stimulus has been provided, the lion’s share of which has come from JobKeeper:

Because of this stimulus, alongside restrictions on spending (due to lockdowns), Australian households amassed a giant war chest of savings over the June and September quarters, with $67.7 billion of disposable income saved in Q2 and a further $60.0 billion saved in Q3:

This equates to a whopping 14.5% of GDP (Q2) and 12.3% of GDP (Q3) that has been saved by households.

The next chart, which presents the savings data in rolling annual terms, shows that an unprecedented $165.7 billion of household income was saved in the year to September 2020, 77% of which was saved in Q2 and Q3 alone:

Although emergency support measures will be withdrawn over coming months – namely JobKeeper, the JobSeeker supplement, early superannuation access, and mortgage repayment holidays – there is a massive pent up supply of unspent stimulus in the form of household savings now available to be spent across the economy.

Wages & salary income should also inevitably rebound as the private sector economy recovers post lockdowns, thus transitioning the economy from public support to market driven income.

Therefore, it is difficult to make the case that JobKeeper should be extended, especially in light of the corresponding boom in company profits:

On the other hand, there is a strong case to lift JobSeeker above its base poverty level:

JobSeeker is paid to those that are actually unemployed. Therefore, it is well targeted, unlike JobKeeper.

The Coronavirus Supplement is currently scheduled to be axed completely from 1 April, which would lower the JobSeeker payment to a paltry $565.70 a fortnight, or just $40 a day. This compares to the Aged Pension rate of $860.60 a fortnight, or $61.50 a fortnight.

If this is allowed to happen, millions of Australians will again be thrown back into poverty.

The solution to poverty is actually very simple and is illustrated clearly in the above chart: bring the JobSeeker payment up to parity with the Aged Pension and the poverty line.

There is simply no reason why people on JobSeeker should be paid a lower rate than those on the Aged Pension – many pensioners of whom are wealthy due to owning their home.

Allowing JobSeeker to fall back to its poverty level of $40 a day would also be economically harmful and self-defeating, as it would dampen domestic demand.

It would ensure a slower economic recovery, higher unemployment than necessary, and increased financial suffering and homelessness.

Permanently lifting JobSeeker to parity with the Aged Pension should be a national economic and social priority.

Unconventional Economist
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Comments

  1. Tourism, venues, arts, weddings, etc…are all industries still massively hit as the government is still hell bent on shutting boarder or restriction gatherings as soon as there is one case. As long as the government keeps restrictions they have to pay affected business. If they don’t want to do that, then lift restrictions.

    Also, the savings amassed, isn’t just because of government support, like jobkeeper, its also access to super (around $35b), loan and rend deferrals ($250b approx loans amount) and to some degree savings from holiday refunds and cancellations)

    Don’t throw out the baby with the bath water.

    • Yep, my income is totally at the discretion at the whims of multiple State Premiers, being in the Aviation sector. My right to earn an income has been taken away without due process and only the smallest pittance of compensation relative to the taxes I have paid. That all stops in 6 weeks

      Confidence in interstate travel is being dealt a severe blow with the up/down start/stop ad hoc reactionary decision making on the borders. After the initial lockdowns & border closures, many travellers felt confident to travel interstate. Not now. As soon as you cross a state border, you have to assume you may not be able to cross back, even to your home for a period of months & possibly an indefinite period.

      Imagine in December 2019 that you could be be locked out of your own state because of a single case of infection in the last 28 days of a Local Government Area that you unluckily visited. People would have had you committed for voicing such a crazy talk. Just fourteen months later this is a continuing reality.

      No longer can plan, you cannot assume anything. Is this not why tyrants were overthrown and democracy was installed throughout Western countries? Tyrants held back progress as no one can take risk, they might find themselves on the wrong side of the tyrants wrath on a whim for any or no reason in particular. Without some semblance of rules and process we will return to some sort of base tribalism. I already feel complete indifference to the fate of interstate victims of the current Cylones and Bushfires. Couldn’t give a toss.

      /rant

      • Mission accomplished.
        This is the goal required.
        After receiving exemption for Qld travel every two weeks, last week I got a response after 3.5 weeks wait that “based on information supplied it was not granted” this time (no different from any previous case before).
        It is understandable the desire to protect the residents of own kingdoms these premiers have, after almost a year since first local cases one would expect that knee jerk reaction should have been replaced with sensible reasonable approach. Makes me certain there’s more freedom for dissidents and western pawns in China than being just a regular Mick Skippy in Aus.
        Job seeker/keeper is just a distraction, another way to support the status quo. It keeps unemployed unemployed and it makes employed come at a lesser cost to those that can maximise the benefits…

    • I agree the case for some industries that are still badly disrupted should have had access to JobKeeper (entertainment, aviation), and still should as they are still shut down. But for everyone else then yes JobKeeper has done its job, and should be scaled back, but NOT shut down as the virus could more successfully slip out of quarantine once more. Another Victorian winter is only a few months away, and it has a real chance at kicking off. Especially as Dan has rescinded the fines instead of making them suspended, so the covidiots would be out in force again. In respect to JobSeeker, absolutely it should be at the level with the pension and poverty line as per your chart, not tracking a third lower. Pendulum swung too far there, needs to be fixed up.

    • Yes, agree with this. There is a reversed moral hazard here – Govt mandated restrictions should have the Govt (printing press) picking up the tab. The current problem is design and administration rather than principle with loopholes arising from expediency and simplicity.

      • Exactly. I just read that Super Retail Group is returning $1.7m in jobkeeper payments because that had a record profits year and didn’t need the payments; but they got given it anyway. Only by the good grace of the CEO and not the government is this occurring. It needs to be more focused and directed towards people that actually need it.

    • If there is a shortage of housing, then giving any extra money to many sufferers (of the shortage) will not help them all. It will just raise rents and leave them in the same quality of housing.

  2. many pensioners of whom are wealthy due to owning their home.

    So possessing shelter makes one wealthy does it?

    Something has gone badly wrong here.

    • It depends if that shelter is a $750k dilapidated ex housing home in 7 Hills or a $3mil 40sqm studio with a stone throw away from the harbour bridge.
      But I agree with your point, only that shelters are long gone and replaced with new normalcy of homes being wealth vessel.

  3. Bringing up to parity with the Aged Pension might be going a bit too far.

    Rationale behind the Aged Pension being higher is that we want our elderly to be comfortable, as comfortable as possible, while the unemployed should have their basic needs met, but not be too comfortable. Too comfortable being a disincentive to work.

    If Aged Pensioners currently get ~65% of Minimum Wage, and JobSeekers ~39%, perhaps a lift to 50% would split the difference.

    Bear in mind a minimum wage earner pays tax, and likely has some additional work related expenses, as well as less time in their life to manage things to a budget. After taking those things into account the values get quite a bit closer than they seem.

    A JobSeeker rate at 67% (then with rent assistance on top!) would likely mean the additional income from working (after expenses & tax) falls to something like $2~$5per hour. Somewhat of a disincentive.

    • Jobseeker is BELOW the poverty line (see Henderson, Melb Institute) – it is deleterious to well-being and finding, and keeping, what is often minimum wage employment. There is no evidence that a reasonably higher rate is disincentive to job search effort or employment/unemployment, not even with the current supplement (see Borland)