Mid last year, many economists (including us) were concerned about the ‘fiscal cliff’ facing the Australian economy once various coronavirus stimulus support payments were pulled-back.
Over $154 billion has been paid out to households so far, including $81 billion in JobKeeper payments, $18.7 billion from the JobSeeker Coronavirus Supplement and $35.9 billion in early superannuation withdrawals.
The early superannuation policy already ended on 31 December and JobKeeper and the JobSeeker Coronavirus Supplement, which have already been lowered, are scheduled to end in around six weeks time.
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There are still around 1.5 million people on JobKeeper and Treasury expects there still to be some 1.3 million people on the payment when the scheme finishes at the end of March. There are also around 1.9 million unemployed Aussies receiving the JobSeeker Coronavirus Supplement.
Both groups are facing significant income reductions as JobSeeker reverts back to its pre-COVID poverty level of $565.70 a fortnight ($40 a day).
Specifically, those on JobKeeper face losing around $930 a month in income, whereas those on the JobSeeker Coronavirus Supplement face losing around $300 in income a month when it’s removed.
In total, Deloitte estimates that “there’ll be close to $5 billion less in government support flowing through the economy each month (a touch over 3% of monthly GDP)” when these schemes end (see next chart).
Moreover, workers in arts and recreation and accommodation and food services are among those facing the biggest hits to their income, as illustrated clearly in the next chart:
While some areas of the economy, such as tourism, face a difficult road ahead, I don’t believe that the pending reduction in fiscal support will necessarily derail the overall recovery.
As Deloitte notes, “between July and October, there was a drop of more than $24 billion in monthly support payments as the Coronavirus supplement was cut to $250 and a reduced two-tiered JobKeeper rate introduced”. Yet the economy weathered those events well.
Australian households have also amassed a massive war chest of savings, which are effectively unspent stimulus:
Thus, the overall economy should transition smoothly from the budget teat.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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