The government recently handed down its budget which includes changes to the schemes designed to support economic activity. Here are 5 top changes worth considering:
- A JobMaker hiring credit will incentivise businesses to hire new, younger workers. The government will contribute up to $200 per week to the cost of their wages, and the new roles need to require at least 20 hours per week. I think it is likely this will be reasonably effective; but will also just bring a lot of “off the books” work on the books.
- JobKeeper (the very generous $750 per week supplement) will be extended to March next year, but reduced to $600 per week and halved to $375 per week for people working less than 20 hours per week. The elephant in the room here is that I believe many businesses that qualified for JobKeeper (due to the sudden lurch in March) have probably recovered since then, and may no longer be eligible for any assistance. The net result in my opinion will be less money for consumers to spend.
- To quote the excellent Valor Wealth newsletter: “The JobSeeker top-up has also been cut by more than half, from $550 a fortnight to $250, reducing the total fortnightly rate for singles from $1115 to $815.” This is plain negative for consumer spending, since those on the unemployment supplement tend to spend the highest proportion of the extra money. This supplement will notionally expire at the end of 2020, though I personally doubt the government would be so stupid as to get rid of it then. I expect they will lose the election if they do, since the old rate is cruel and unliveable.
- Individuals will get a tax cut. This will be a boost to the economy but it seems poorly targeted to me as the biggest gains will go to the people most likely to simply save the excess (ie wealthy people). Corporates will also get a tax cut, and indeed new measures will allow accelerated depreciation, further encouraging near term investment in business. Taken together, these measures should be supportive of employment and demand.
- To quote Valor Wealth again; “Along with measures announced during the coronavirus crisis, $14 billion has also been earmarked for new and accelerated infrastructure projects support a further 40,000 jobs, which is designed to “boost productivity and deliver long term benefits for Australians”. For me this is the most significant because it should provide strong blue-collar, decent paid work at a time when it is needed most. Having said that, focussing significant largess on construction (which is male dominated) without similar support for female dominated roles (like aged care, child care and nursing) is unfortunate (in my view). Australian women end up with much less superannuation than men, partly because policy making so often supports male dominated roles, and childcare is so expensive.
Overall, this budget will be supportive of the economy and I remain optimistic that Australia is in a reasonable position to weather the current storm. Having said that, it is the delta in the fiscal stimulus that matters most in the short term and I think that with big cuts to JobSeeker and JobKeeper the risk is to the downside for many consumer businesses.