SYDNEY — Amid the Great Depression 90 years ago, Sydney’s job-creating “iron lung” for thousands of men was the long-running task of building a harbor bridge linking the city’s southern and northern sides.
Without a job on the bridge or the docks, breadwinners faced the ignominy of joining the soup kitchen queues in the ingloriously named Happy Valley shantytown in Sydney’s sand hills, or heading into the countryside in search of casual work and food coupons.
There is no new physical bridge to be built today as Australia’s biggest city and other major population centers in the country struggle for breathing space in the battle against the COVID-19 pandemic. Instead, the national government is intent on building what it has called “a bridge to recovery on the other side” of the health crisis through an unprecedented wage subsidy scheme that will buy jobs for 6 million people at a cost of 130 billion Australia dollars ($78 billion) over the next six months.
Dubbed variously “enormous,” “absolutely necessary,” a “confidence-booster” and an “extraordinary incentive” by leading economists, the so-called JobKeeper scheme is the third and most wide-ranging antivirus rescue package unveiled so far by the conservative Liberal-National coalition government led by Prime Minister Scott Morrison. The total value of government support, including funding from the central Reserve Bank of Australia, is now about A$320 billion, or 16% of gross domestic product, massive amount for the country of 25 million residents.
How well the unlikely alliance of business, labor and government holds together over the next six months will determine the strength of Morrison’s bridge to recovery. The package also puts a focus on the challenges countries face in weighing what governments can afford to roll out in order to save their national economies from sliding into a deep economic crisis.
In the view of most economists, the Australian government’s support won’t stave off a 2020 recession but will probably save Australia from another Great Depression. It will also consign the nation to a generation of debt and it will still leave 2 million workers out in the cold.
Essentially, the JobKeeper program will pay A$1,500 a fortnight (equal to 70% of the national median wage) per employee to businesses for the next six months so they can keep full-time, part-time and long-term casual workers on their books, ready to work again when the crisis passes and the economy starts to pick up. About 300,000 businesses already have registered to take advantage of it, including large numbers of self-employed individuals who own and run their business.
Treasurer Josh Frydenberg says it is no secret that Australia will be paying off this debt for years to come, but claims the nation “entered this crisis from a position of economic strength.” That reflects Australia’s 28 years of unbroken economic growth, a record unequalled by any other developed nation, and attributable to a lucky combination of economic reforms in the 1990s and China’s insatiable appetite for Australian commodities such as iron ore, coal, liquefied natural gas, gold and high-value food, plus steady growth in services such as education and tourism.
The coronavirus crisis is taking Morrison’s conservative government into strange territory. A Liberal party that has always identified with free market capitalism and a laissez-faire approach is now embracing big government interventions, a wage subsidy and possible stakeholdings in some companies that it may deem essential.
The rescue packages and other anti-virus interventions introduced by Morrison and Frydenberg in conjunction with Australia’s eight state and territory governments in a National Cabinet approach have been backed by the opposition Labor party, though there have been grumbles about the delay in bringing in a wage subsidy.
Labor’s shadow Treasurer, Jim Chalmers, welcomed the government’s JobKeeper program, calling it a “change of heart” from weeks earlier when Morrison and Frydenberg had dismissed a wage subsidy as a bad idea. Sally McManus, secretary of the top labor body, the Australian Council of Trade Unions, said the government had finally heard the unions’ call for a wage subsidy. She said it was a “good start” but $1,500 a fortnight was “manifestly inadequate” and the program did not cover 1 million casual workers who had been with an employer for less than 12 months, and another 1 million temporary visa holders.
The country’s economists and business leaders, however, welcome the government’s move.
Business Council of Australia Chief Executive Jennifer Westacott said the JobKeeper payment would enable businesses to bounce back quickly when the crisis passes. “It is a fair and commonsense way of ensuring employees can remain connected to their employers,” she said.
Shane Oliver, chief economist of the AMP financial services group, termed the program “absolutely necessary,” saying that while it might not stop a recession, it would help limit collateral damage and boost recovery.
One of Australia’s leading economists, Chris Richardson of Deloitte Access Economics, termed the scale of the government’s package enormous. Richardson has said previously that if a worker is laid off in Australia and does not get another job within two years, it is likely that person will never work again. If JobKeeper succeeds, that outcome will be avoided.
Commonwealth Bank chief economist Gareth Aird termed it an “extraordinary incentive” for businesses to hold onto staff over the next six months. CommSec chief economist Craig James concurred, saying the scheme gave hope to workers and businesses, while EY chief economist Jo Masters said for a worker to know there was a job ready and waiting on the other side helped with confidence levels.