March 26, 2020 05:52:56
There’s a serious argument doing the rounds.
It goes like this: the Morrison Government’s decision to use Centrelink to provide the cushion for the labour market during the coronavirus crisis will see the unemployment rate skyrocket and household incomes collapse.
Instead, it should be subsidising a large proportion of workers’ wages, via employers, to keep as many people as possible employed for the next six months.
It should also ensure that workers who do lose their jobs can access emergency incomes close to what they were earning before the crisis, up to a certain level of income.
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As the argument goes, if this doesn’t happen, Australia’s unemployment rate could soar in coming weeks, to peak at higher levels than it would under a wage subsidy scheme.
As growing unemployment queues snake around city blocks, it could haunt Australian workers for decades to come.
But on Wednesday Prime Minister Scott Morrison rejected the argument, saying it would be “very dangerous” to pursue such a scheme.
Wage subsidies for workers overseas
UK (80 per cent)Denmark (75-90 per cent)Netherlands (90 per cent)Ireland (70 per cent)South Korea (70 per cent)Note: not every worker in every country gets subsidised if they lose their job and each nation has different caps on subsidies.
“One of the weaknesses of the system that you’re advocating for is that it has to build an entirely new payment system for that to be achieved, which is never done quickly and is never done well,” he said.
“That can put at great risk the sort of resources we’re trying to get to people.”
He said the best way to get help to people was through the existing payment channels and tax system arrangements, which included Centrelink.
Mr Morrison also dismissed the argument that his plan would lead to more job losses.
“What we’re doing is keeping as many businesses as we possibly can open,” Mr Morrison said.
“And then what we’re doing for those businesses that closed because of the many measures, in fact, that we’re putting in place, we are ensuring a stronger safety net for all of those who are impacted by that.”
Could the jobless rate peak without wage subsidies?
Economists say Australia’s unemployment rate will soar in coming weeks, and some have argued it could trigger a house price crash.
Westpac chief economist Bill Evans estimates the number of unemployed will rise by 814,000 people in coming months, with the unemployment rate leaping from 5.1 per cent to 11.1 per cent.
By the Government’s own figures, at least 1 million workers may have to access its emergency $550 fortnightly coronavirus payment, though not all of them will be unemployed.
Is the jobless rate going to peak at higher levels than it would have under a wage subsidy scheme?
According to former Labor treasurer Wayne Swan, who oversaw Australia’s stimulus packages during the last major economic catastrophe (the global financial crisis), it will.
“The Government has virtually guaranteed that Australia will have a higher unemployment rate than countries that are pursuing wage subsidy schemes,” Mr Swan told the ABC.
“If you read Treasurer Josh Frydenberg’s language, he’s basically given up trying to save jobs. He talks about a safety net.”
Under the Federal Government’s scheme, the maximum Centrelink payment for a single person with no children will be $1,124.50 a fortnight, which is just 76 per cent of the minimum wage for a full-time worker.
Call for Government to guarantee 80 per cent of workers’ wages
On Wednesday the Australian Council of Trade Unions (ACTU) also called on the Government to introduce a wage subsidy scheme.
It said the Government should agree to pay 80 per cent of the wage costs for workers at hard-hit firms who would otherwise be made redundant or stood down because of the crisis.
It said eligible companies should be those that had experienced a decline of more than 25 per cent in revenues.
And covered workers would not necessarily have to work while the Government paid their wages (if there was no work to do), but they would keep their jobs, it said.
That would prevent the welfare system from being flooded with hundreds of thousands of suddenly unemployed workers.
Firms could apply through the Australian Taxation Office (ATO), which has their employment and tax records, and should receive 75 per cent of their expected rebate on application to immediately boost their cash flow.
“This [wage subsidies] will give immediate certainty to both businesses and working people,” ACTU secretary Sally McManus said.
“It will keep people in employment now and into the future.”
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Social security system best way to deliver payments, tax expert says
Director of the Tax and Transfer Policy Institute at ANU, Miranda Stewart, said Australia’s social security system had been designed to make fortnightly income payments to welfare recipients, and it was relatively good at doing so.
“As long as we can ensure the administrative and technology capacity is there, it’s better than using the tax system [to make welfare payments],” she said.
She said the tax system was better for delivering cash support to businesses that submitted business activity statements (BAS), but it wouldn’t be a straight-forward process for the ATO to modify its systems so it could subsidise the wage costs of businesses.
“My guess would be that the ATO’s systems would require re-fitting, restructuring, or even re-programming — and that would lose valuable time given how urgent the issues are,” she said.
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Ms Stewart said one of the problems facing Centrelink was hundreds of thousands of workers who had never registered with the service were suddenly needing emergency income payments.
She said in the future if every Australian was registered in the Centrelink system it would be far easier for payments to be made quickly when the next crisis occurred.
“But over the last two decades, the Government has been very focused on reducing the cost of government, reducing the size of the social security department, pushing everything online, adding more stringent conditions,” she said.
“The trouble is that that means when something like this happens we’re not quite ready to turn it around.”
“I think we’ve undermined the ability to respond rapidly to a crisis, and in the current era we may need to re-think that.”
“We’ve bushfires, we’ve now got the coronavirus, and who knows what will happen next year.”