Too Many Support Packages Ending in September: Report

A report has said that government support, like the Jobseeker payment, should be retained past its scheduled review date in September, warning that “too much support ends at the same time.” 

Deloitte Access Economics has warned of the potential impact of lowering the Jobseeker payment coinciding with the removal of the JobKeeper payment, forecasting the removal of safety nets might be premature. 

Authors of the report say that a government withdrawal of support mechanisms could ultimately harm Australia’s recovery effort. 

In the fight against the “phantom menace” of government debt, the removal of wide scale support packages for unemployed and those out of work due to the coronavirus may undermine the government’s fiscal plans. 

The report points to Australia’s “relative success in our virus fight,” praising the actions of the government’s response in minimising the impact of a recession. The authors point that the recession “may well have already passed its worst” point, offering a few projections for GDP contractions. 

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GDP & Unemployment Forecasts

According to Deloitte, Australia’s GDP is set to contract by 6.4% in the June quarter, but will rebound by 2.4% in the September quarter. 

The employment rate is set to shrink by 6.6% in the June quarter, with unemployment set to rise to 8.5% by March next year. 

In terms of the 835,000 Australians unemployed, Deloitte is warning of the “generational damage” in the absence of a “smooth transition in timing and dollars.” 

With the government’s JobKeeper wage subsidy and doubling of the JobSeeker payment slated to end in September, authors of the report are warning of the potential damage of “too much support end[ing] at the same time.” 

There is, however, a tricky tightrope for the government to walk. As noted in the report, some sectors of the economy will require long-term support due to border closures and some industries unable to operate at full capacity. 

Widespread government support will need to be stopped, the authors say, otherwise the country is at risk of supporting “zombie” jobs, at the expense of the budget. 

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small business support
Small businesses, particularly hospitality and the arts have been hit hard by the pandemic.

Instead, Deloitte says restricting the criteria for JobKeeper subsidies, or implementing rescue packages for specific industries could be a potential solution. 

“Keeper JobSeeker stronger for longer will be vital in filling the cracks as emergency safety nets morph and disappear,” they wrote. 

“Another phantom menace is the belief that, even if we don’t pay off the debt, we have to raise taxes and cut spending to fix the budget,” they noted. 

“That’s completely wrong and it unnecessarily scares the punters. The emergency measures are temporary. So, as Treasury notes, if we can repair the economy, then we’ll repair the budget.” 

The authors added that “governments will bow out of their support, leaving it up to central banks to repair economies.” 

Deloitte expects low interest rates are set to stay, alongside wage freezes. Government borrowing rates are expected to remain low, with 10-year treasury bond rates at or below the 0.6% mark until 2025. 

Last week, the Reserve Bank of Australia’s deputy governor, Guy Debelle said he expects government support will be needed for “quite some time” to allow the economy to recover in full. 

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