Prime Minister Scott Morrison and Treasurer Josh Frydenberg will reveal details whether the government’s JobKeeper program will be extended on July 23. These financial lifelines, which have kept many businesses and individuals afloat during the COVID-19 crisis, were due to end in September. But it seems as if JobKeeper will extend in some shape or form beyond September, with speculation it could be renamed JobMaker. Tougher eligibility requirements will be enforced. Senior economist from AMP, Diana Mousina speaks with Together Australia about her predictions for the future of JobKeeper.
Do you believe JobKeeper should be extended?
There is a need for the government to provide support to household incomes at a time when the employment outlook looks much weaker than where it was before COVID-19 hit. The unemployment rate is just over 7% (likely to go to 8% or even a little higher), compared to 5.2% before coronavirus.
The labour market is likely to remain weak over the remainder of 2020 and into 2021 because not all industries will be able to fully operate to their pre-coronavirus capacity. However, this worse employment outlook does not impact all households equally. The earlier re-opening of the economy has allowed many businesses to start back up again and get their staff back to work.
But many businesses are still in the early stages of getting back to “normal” (or some level of normal). This means that JobKeeper payments for businesses that are not able to operate close to their pre-coronavirus capacity (for example businesses in the tourism industry) still do need some support with paying and retaining staff.
There is a case to wind back JobKeeper support for some businesses but extend it for others. The JobKeeper program was designed at a time when a quick response was needed to the pandemic so there have been issues with the program (for example some people are receiving more in wages and salaries now than before COVID-19 occurred). And there are also issues with some large parts of the labour market not receiving anything (like universities) which doesn’t seem equitable.
Overall, the program needs to be better targeted and there is a case to keep support ongoing for some specific industries, whether this be in JobKeeper or JobSeeker payments. The problem with allowing JobKeeper to go on for too long is that it could create “zombie businesses” that are only surviving because of government support. This is similar to the arguments around tariffs and trade protectionism – in the long run, it ends up being unproductive. A better strategy would be to encourage people to look for work, but to keep unemployment benefit payments paid to this group, so it may be the case that instead of extending JobKeeper, some people can be transitioned to the JobSeeker unemployment benefit payment.
I am concerned about the build-up in government debt because it will take more than a decade to repay, on current projections (assuming that we don’t have an inflation spike) which leaves less room for policy reform later down the track. However, some government support is still required for the economy, to keep the current recession from dragging on which is why JobKeeper should be repurposed to a more targeted income support payment.
What do you anticipate will come out of the economic and fiscal update on July 23?
The Prime Minister, Scott Morrison, confirmed that the JobKeeper program will be kept on in some way after its previously scheduled end date of September. But, it is still unclear in what capacity it will be kept on at. I think it is unlikely that it will be maintained as it currently stands because there have been numerous industries that have resumed more normal business given the easing in lockdowns. For businesses whose cash flows have recovered back to pre-COVID levels, there needs to be a tapering of JobKeeper support otherwise government debt levels will start to build up too far. But many industries (like tourism and its related sectors) will need ongoing support while the economy continues to open up.
Victoria will need more support in the short-term while Melbourne is in lockdown. So targeted support is necessary by industry and region. Overall, in the fiscal update in July the government is likely to announce a tapering of JobKeeper for some businesses but to keep a lot of support ongoing which the government has the capacity to do in terms of funds, given that the initial program was expected to cost $60 billion more than it is currently projected to cost. JobSeeker (unemployment benefit) support is also likely to be tapered, but not to go down to its original amount of $40/$50 a day straight away after its end of September deadline.