We were warned. The fiscal cliff has been much discussed, now it is here. With the release of the latest Australian Bureau of Statistics (ABS) data on wages and jobs — high frequency data that the ABS began to compile only during the pandemic — we can see its effect. Jobs are falling and wages too.
As September ended, Australia was finally getting on top of the virus. Victoria had finally beaten back its monstrous second wave and the prospect of a normal Christmas began to dawn. Borders might be able to be opened. You might have thought these positive omens would cause positive effects in the labour market.
Instead we see the reverse. As the next chart shows, the start of October marked a sharp fall in both wages and jobs.
What has changed? JobKeeper payments got both smaller and harder to qualify for.
It is impossible to make a direct causal claim that the tightening of JobKeeper is the cause of the job losses we are starting to see, but the timing makes the inference extremely plausible.
The program was originally available to any business that had suffered a downturn in revenues back in April. Almost 1 million businesses were eligible. The eligibility has been suddenly tightened, meaning that thousands of businesses find the federal government is no longer subsiding their payroll. And the process is not over. Two thirds of JobKeeper recipients are expected to be moved off the program over coming months.
It is a paradox of any temporary stimulus spending that it will eventually need to be removed. The larger and more generous it is, the more pressure exists to remove it hastily. And JobKeeper was nothing if not large and generous. It cost an estimated $100 billion, around the cost of high-speed rail up the east coast.
The question is when to remove it.
Shadow treasurer Jim Chalmers used the new numbers to give the government a whack for pulling it too soon.
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.
“This is the consequence of a Morrison government that cuts support even as unemployment is rising,” he said in a media release. “Decisions taken by the Liberals and Nationals mean that the Morrison recession will be deeper than necessary and the unemployment queues longer than they need to be.”
It is certainly the case that unemployment is rising. Currently at 7% and expected to peak in December at 8%. Those forecasts include the expected cut to JobKeeper. In a way, the government is choosing the level of unemployment it is willing to accept, and balancing that against the build-up of government debt.
Certainly there is a newfound willingness to build up debt among our political class, but it is evidently not absolute. Unless that changes, we’re going to need to find other ways to stoke the economic activity that creates jobs.
One idea is to look at the private sector.
During the crisis, as the government has built up debt, the private sector has built up savings. Money that flowed from government to businesses and households has not all been spent. Instead we’ve saved.
We’ve paid off credit cards at record rates. Families have stuffed their mortgage offset accounts with thousands of dollars they would otherwise have spent on holidays. People have piles of dollars just sitting in savings accounts. Businesses are also flush with cash.
The Reserve Bank (RBA) hopes these savings can act as a sort of ramp down the fiscal cliff.
“Household income is likely to decline in the December quarter … In normal times, a decline in income would be expected to affect consumption, but these are not normal times,” said RBA governor Philip Lowe in a speech last week.
“It is entirely possible that as restrictions ease, people will choose to draw on their accumulated buffers to sustain and increase their spending.”
The idea here is a seamless hand-off of spending from the government to the private sector. There is a theoretical basis for this idea. People save more when money flows in and spend more when the flow slows to a trickle. This is an idea we call consumption smoothing. Furthermore, as restrictions ease people will spend more. So the RBA is not totally wrong to expect the private sector to take up the slack.
The difference is that the private sector — people like you and me, businesses like your corner shop — might get nervous about the economic outlook. Will you really spend big as the economy falters?
While government can deliberately spend billions in the teeth of an economic hurricane, we might hunker down. If nervousness takes hold and Australians hold onto those savings instead of spending them, the forecast rise in unemployment might turn out to be an underestimate.
Will the government manage to pull Australia out of its economic black hole? Let us know your thoughts by writing to [email protected]. Please include your full name to be considered for publication in Crikey’s Your Say section.