Disadvantages of JobKeeper Redux


Commentary

It didn’t take long for commentators to label the revised federal and state joint financial support package for the financial victims of COVID-19 restrictions as “Job Keeperlite.”

This is undoubtedly annoying after Australia’s Prime Minister Scott Morrison and Finance Minister Josh Frydenberg insisted that they would invest valuable political capital to fill JobKeeper’s subsidy system at the end of March and not revive it. Let’s do it. However, the new package has much in common with JobKeeper, albeit with significant differences.

The real question is not how to label the new package, but whether it needs to be provided.

First, the difference. JobKeeper has spent $ 90 billion on a federal budget over a 12-month lifespan.

The new package doesn’t reach anything like that number, even if it proves necessary for months, and across several states. This is because the rules are much less generous, up to $ 600 a week for individual employees and $ 10,000 a week for small businesses.

JobKeeper provided all benefits to employees through their employers, not directly. In addition, New South Wales (NSW) and other states eligible for the COVID outbreak will share the budgetary costs of payments to businesses. The state has traditionally provided business support at its own expense, but has not paid for JobKeeper at all.

Epoch Times Photo
Family walking in front of a store with shutters on July 12, 2021 during the blockade at Fairfield, Sydney, Australia (Saeed Khan / AFP via Getty Images)

It’s unclear what the total cost will be, depending on how long Sydney remains closed, but a $ 5 billion figure is mentioned.

Most of this will fall to the Commonwealth, but it also shocks NSW Treasurer Dominique Perotet, who handed over his 2021-22 budget just three weeks ago based on assumptions about COVID limits already blown out of the water. Will come as.

The cost to the state budget exceeds NSW’s contribution to the federal / state JobKeeper lite. For example, state income also suffers from the long blockade of Greater Sydney.

Another important difference is that federal support is limited to the declared “hotspot” area and will be turned off as soon as the federal declaration is revoked. In contrast, JobKeeper continued for a period of time regardless.

What the latest packages have in common with JobKeeper is that they both aim to support the purchasing power of consumers and to make employees attached to their employers even when they are not working.

Business support payments are subject to the employer not reducing his full-time, part-time, or casual salary from his current level as of July 13. This discourages small businesses from dismissing people.

The idea is to keep the employer-employee link intact for a faster final recovery.

Large employers don’t get support, but they’re good at surviving storms.

Epoch Times Photo
Table recorded at Australia Square in CBD, Sydney, Australia, July 13, 2021 (Jenny Evans / Getty Images)

Aside from design features, the question of whether this kind of scheme is guaranteed is inseparable from whether the shutdown itself is guaranteed. Employee and business support is justified, as economic activity is suspended by government legislation for greater benefit if closure is deemed necessary.

However, there is some circulation here. Support is justified when there are limits, but support availability helps state governments impose limits and encourage them to maintain them.

Since blockades and border closures have become controversial, it has been argued that federal financial support for businesses and jobs will, in fact, bias the state to limits.

The JobKeeper outage at the end of March was expected to remove such incentives for the state and make it more aware of the cost of state action.

However, in the months since then, there has been little evidence that the first signs of COVID cluster development have diminished the state’s tendency to blockade and close its borders.

They seem to stick firmly to the eradication of COVID-19, but it is unrealistic and costly, so they are willing to incur and bear almost all the costs to achieve it. Undoubtedly their first preference is that the federal budget should bear the cost, but otherwise they push the extreme limits anyway.

Accepting a proceedings for assistance when the government orders the suspension or restraint of business activities does not mean that all assistance schemes are justified. For example, the design flaws in the original JobKeeper scheme are well known. Succession schemes are hopefully less likely to be abused.

We also need to pay attention to the economic downsides of such schemes. As the Productivity Commission said in a timely review of COVID-19 financial support released this week, “The longer the support, the less efficient it is while providing storm rent to profitable businesses. It’s more likely to support a company (or ultimately infeasible). “

In other words, scarce economic resources can be trapped in companies without a future, delaying the inevitable transition to more efficient use of these resources.

That is a long-term concern. In the short term, last year’s experience in Melbourne clearly shows that the New South Wales economy is facing a serious recession, even with financial support. This quarter will hurt the country’s economic performance.

Recovery is no longer “V” shaped and can even be reversed in the worst case scenarios.

Robert Curling is a Senior Fellow of the Independent Research Center in Sydney, Australia, and a former World Bank, IMF, and Federal and State Treasury Economist.

The views expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.

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