Is Australia ready for the JobSeeker cord being pulled? 

Summary

• JobKeeper and JobSeeker subsidies that saved millions from falling into poverty were extended by the Australian government for another 6 months to March 2021, but with reduced payments.
• Coronavirus supplement would be slashed from $550 to $250 from 25 September till 31 December 2020, with the base rate of JobSeeker payment falling to $815 a fortnight.
• Deloitte has predicted that the reduction in Jobseeker will cost $31.3 billion to the economy, resulting in a loss of about 145,000 full-time jobs in the next 2 years.
• About 5.8 million people would have been pushed into poverty from the estimated 2.6 million in June, had JobKeeper and JobSeeker subsidy wages not been in place.

The Australian government had launched wage subsidy programmes to counter rising unemployment, which occurred due to widespread shutdown of businesses, schools, restaurants, bars, airlines, and many other services amid coronavirus induced lockdowns.

Coronavirus has infected 26,739 people in Australia and resulted in 816 deaths to date, as on 15 September 2020.

The surge in COVID-19 cases has been largely due to second outbreak in Victoria that has been put in a strict lockdown till 28 September 2020, but some restrictions were relaxed in the state on 14 September amid steady drop in cases.

MUST READ; 5 Steps Australia should take as the business re-opens across Victoria

However, tough lockdowns imposed to contain the coronavirus spread in the state came at a cost of huge job losses.

ALSO READ: Victoria’s second wave of COVID-19 is pulling down jobs and consumer spending

As per ABS data, the number of payroll jobs in the Victorian state dropped 2% over the month to 22 August. The state is projected to lose up to 325,000 jobs in 2020 as per a PwC report.

Source: ABS, dated: 8 September 2020

JobKeeper and JobSeeker extension

JobKeeper and JobSeeker subsidies were introduced to keep Australians in jobs and have helped to pull millions of workers out of poverty. About 3.8 million Australian natives or around 15% of the people would have suffered without the subsidies.

ALSO READ: All you need to know about JobKeeper Payment scheme

However, thousands of Australians are expected to be pushed into poverty as JobKeeper and JobSeeker payments get slashed, beginning 28 September.

JobKeeper payment was set at a flat $1500 per fortnight, and the coronavirus supplement of $550 per fortnight was decided sufficiently to double the JobSeeker payment and related payments to about $1,115 per fortnight.

On 1 September, Australian senate passed an extension to JobKeeper subsidy for another 6 months until March 2021, but with reduced payments.

ALSO READ: Morrison government revamped rules lets one take a dip into JobKeeper and JobSeeker dole outs

From 28 September to 3 January, JobKeeper would be lowered to $1200 per fortnight for employees working above 20 hours a week (Tier 1) and to $750 per fortnight for employees working less than 20 hours a week (Tier 2).

The rates will fall further to $1000 per fortnight for Tier 1 employees and $650 per fortnight for Tier 2 employees between 4 January 2021 to 28 March 2021.

Further, the JobSeeker COVID supplement will be reduced from $550 per fortnight to $250 from October to December 2020, a cut of $300, making the base rate of JobSeeker dropping to $815 per fortnight.

The JobSeeker reduction could cost billions

The government’s policy to cut back coronavirus supplement from $550 per fortnight to $250 per fortnight from 25 September to 31 December, the payment reduction of $300 a fortnight would cost the economy $31.3 billion and render about 145,000 people jobless in the upcoming 2 years period, as per Deloitte economists’ report.

The Deloitte report stated that cutting coronavirus supplement from JobSeeker payments would not result in much change to the future course of Australian government’s debt.

However, going too fast and without any plans to tackle the resulting drop in incomes can make a significant difference to the economy.

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The report asserted that cutting the COVID-19 supplement can hinder the recovery process, as well as reduce GDP and employment across Australia.

Some of the conclusions drawn in the report are as follows:

• Lower payment will result in a steep reduction in spending as about 1 million families would face reduced payments and will push several more workers into the dole queues.
• Reduced spending will hurt the economy more as it is currently undergoing a deep recession.
• Incentives to work must be considered while deciding the JobSeeker payment for the long run, along with the fact that the unemployment rate will be at a very high level for some time.
• As a large number of people are looking for for jobs amid scarce employment vacancies, higher unemployment payments would have a very little effect on the level of employment in the short-term, as per the report.

About 2.37 million would obtain the supplement payment in December, when the unemployment rate would have hit 10%, but will drop to 1.73 million recipients by June 2022.

Coalition MPs have claimed that higher rate of benefits was acting as a hindrance for the unemployed people to take up work. However, Deloitte’s report asserted that the argument was not relevant during high unemployment phase.

Jobs and economy to suffer by reduced payments

Australia economy contracted by 7% in the June quarter from a 0.3% drop in March, marking the single largest quarterly drop and officially confirming Australia’s first recession in 29 years. The numbers could have been far worse if the subsidy programs had not been in place.

Did You read; Australia in recession for the first time in Three Decades; Are There Any Emerging Green Shoots?

Australian growth is hardly assured with JobKeeper to end in March and JobSeeker to shrink by December. This is happening when Victoria is still struggling to control the virus and is under extended lockdown measures.

ALSO READ: JobKeeper Scheme to cost an extra $15 billion amid Victoria crisis

Dr Cassandra Goldie, Chief Executive Officer, ACOSS (Australian Council of Social Service), has urged governments to extend the existing coronavirus supplement to prevent income cuts in 2 weeks before passing a permanent rate.

She added that there are 12 people obtaining JobSeeker for every job vacancy and the number would be 28 individuals for every vacancy in regional parts.

Victoria will witness more than 1 million people undergoing a cut in JobKeeper payments by $300 a fortnight while they remain in lockdown. Thousands of Victorians are expected to lose their jobs and be forced onto JobSeeker payment, the amount of which will be cut by the government from 25 September.

DO READ: A Push to GDP Estimates and Stocks centred around JobKeeper dependency

The estimated number of people under poverty would have been about 5.8 million without JobKeeper and JobSeeker, which as per estimated June figures stood at 2.6 million.

The coronavirus supplement will expire by 31 December, and it currently supports about 2.3 million people. Around 200k more people are expected to live under poverty by October compared to February 2020 prior to the supplement ending completely in December.

(NOTE: Currency is reported in AU Dollar unless stated otherwise)