Despite 30 years since the last recession, Australia entered the coronavirus crisis with low economic growth, stagnant wages and more than 13 per cent of the labour force underutilised through unemployment or underemployment.
Despite some delays, the national Cabinet has handled the significant health challenges well, and, unlike other recent crises, politicians have been receptive to expert views. Federal politicians have also operated in a bipartisan manner in responding to the economic crisis, but with respect to fiscal policy has all the ideological baggage been left outside Parliament?
In assessing the fiscal measures, we need to assess whether macroeconomic conditions, when living and working conditions return to something approaching normality, will be conducive to sustained economic recovery, albeit with some structural changes having occurred most notably the absence of foreign tourist arrivals until our borders are reopened.
The government needs to be disabused of the idea that the Treasury forecast of 10 per cent unemployment in the June quarter would demonstrate the success of their measures. Businesses will not resume normal operations, with employees returning to their customary hours of work, during a major recession.
The government needs to be disabused of the idea that the Treasury forecast of 10 per cent unemployment in the June quarter would demonstrate the success of their measures.
The two fiscal initiatives that directly affect working people are the Job Keeper (JK) payment and the Job Seeker (JS) initiative. The JK payment was explored in the Herald article Boost the stimulus (NH, 18/4). The view was expressed that JK was inadequate since most workers' incomes would not be restored to their usual levels and groups including some casuals were not covered by the payment. This would lead to sluggish consumer spending and impact adversely on the economic recovery.
The JS scheme, which supplemented Newstart, was a badly-timed initiative that preceded the announcement of the JK scheme and caused huge queues outside Centrelink offices. Under JS, workers who were unemployed before the crisis and received Newstart ($550 a fortnight for singles) were entitled to receive a coronavirus supplement of $550 a fortnight for six months. These arrangements also applied to workers who lost their jobs due to the crisis.
For years there have been calls from welfare groups and economists that the Newstart allowance be significantly increased, since its real value has been constant since 1994. Those who were unemployed before the crisis have been treated as undeserving, since their failure to secure work was typically attributed to personal shortcomings, such as lack of education, work experience and poor job search strategies.
But unemployment is a macroeconomic phenomenon arising from the insufficiency of total spending in the economy. The ratio of total Australian unemployment to total vacancies since August 2014 has ranged from 2.7 to 4.9 without any correction for the mismatch of unemployed workers and vacancies with respect to skills and location. Thus, even if every vacancy was filled, significant unemployment would persist.
On the other hand, those workers who have become unemployed due to the crisis can be considered deserving, not only because of the supplement paid to all the unemployed, but also since the income test and onerous obligations on the unemployed have been relaxed.
If, as anticipated the economy is in a deep recession when the self-isolation measures are relaxed, the government will face a dilemma of whether or not to revert to the current Newstart allowance for the undeserving unemployed, given that both groups have been subject to forces outside their control, and many of the deserving unemployed would also remain unemployed.
In the Heraldarticle, Professor Bill Mitchell and I advocated a minimum-wage Job Guarantee to enable the deployment of unemployed workers in activities, including bushfire recovery work, infrastructure improvements and fruit and vegetable picking, without compromising social distancing. This would raise weekly remuneration of those current unemployed by almost $200.
In the absence of additional fiscal measures, the prospects for the Australian economy post-isolation will be grim with many workers who have been made unemployed or experienced a cut in hours of work being unable to meet their financial commitments, including rent. Total household debt will increase, which, when compared to after-tax income, is already very high by world standards.
