The lessons of our past and our neighbours’ present could guide Australia’s economic response to coronavirus

The lessons of our past and our neighbours' present could guide Australia's economic response to coronavirus

Posted

March 29, 2020 06:06:02


Photo:

People queue at Centrelink the day after the Government restrictions forced a number of businesses to close. (ABC News: Andrew O’Connor)

During the Great Depression, unemployed workers were offered three kinds of official support in Australia.

From 1930, assistance known as “sustenance”, “food relief”, “the dole” or “rations”, was provided for some destitute households, and was barely enough to survive.

Towards the end of 1933, most states began rolling out “work-for-sustenance” programs where workers were paid far below basic wage rates for participating in special “make-work” projects, like laying sewerage pipes and building roads.

And miscellaneous assistance was provided by state governments through the decade, like free retraining for young teenagers.

But the sustenance programs were contentious.

In 1936, when the scourge of poverty had become so entrenched that an “abolish poverty” campaign had begun, the level of assistance provided for an unemployed man to support just one child was openly mocked.

“Many people spend more than that on a dog,” one woman complained during a poverty abolition meeting in Cairns.

“Teachers will tell you that in the city schools the ‘dole’ and the ‘susso kids’ are now a distinct type. Thin, listless and rickety, they quickly fall behind in games and study.”


Photo:

A gathering of unemployed men at Parliament House in 1930, during the Great Depression. (National Library of Australia)

The official assistance was too paltry to prevent shanty towns and unemployment camps mushrooming around the country, such as the famous “Happy Valley” in Sydney’s south, where hundreds of shacks and tents were erected in the sand dunes of La Perouse in Botany Bay.

Life on the sustenance was immortalised in song:

We’re on the susso now

We can’t afford a cow

We live in a tent

We pay no rent

We’re on the susso now

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Fifty years later, in 1983, a Reserve Bank research discussion paper noted how Australia’s welfare architecture had been woefully unsuitable during the Great Depression, and lessons had been learned from the experience.

“The rapid rise in unemployment in the early 1930s overwhelmed traditional methods of relieving unemployment,” the paper said.

“Today, unemployment benefits are paid in cash rather than partly-in-kind and various forms of miscellaneous assistance have been expanded considerably.”

How does that translate to today?

Fast forward to 2020, and we’re quickly learning lessons about our own welfare architecture.

At this point in the coronavirus media cycle, the Morrison Government is still planning to rely on Centrelink to provide the survival net for the hundreds of thousands (potentially millions) of Australians who are losing their jobs as parts of the economy are shut down to prevent the coronavirus spreading.

On Monday, after pubs and clubs, indoor entertainment venues, sporting facilities and places of worship were ordered closed, we saw how Centrelink’s systems — our modern method of relieving unemployment — were overwhelmed by the rapid rise in unemployment.

Government ministers couldn’t believe what they were seeing as the MyGov website crashed and unemployment queues formed literally overnight.

Stuart Robert, the Government Services Minister, said he failed to appreciate the scale of demand that would be placed on Centrelink by the decision to force hundreds of thousands of businesses to close this week.

“My bad,” he said.

But the flow-on effects from the decision to rely on Centrelink to provide the sustenance program for Australia’s workers have compounded quickly.

By Friday, with the economy still haemorrhaging jobs, the Government said it was considering a suite of radical measures to put affected businesses into “hibernation” somehow, so employers could see through the next six months and then re-open their businesses without much damage or debt and carry on trading.

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But its plan for workers hasn’t allowed for similar hibernation.

Under its emergency unemployment scheme, the maximum Centrelink payments for a single person with no children is currently $1,124.50 a fortnight, just 76 per cent of the minimum wage for a full-time worker.

And when recipients wake from six months on that less-than-minimum wage they won’t have a job to return to.

So, who will provide the custom to the businesses that survive hibernation and try to reopen and keep trading later in the year?

Overseas examples may hold the key

The Australian Chamber of Commerce and Industry, Labor and the unions, the Greens and a range of economists have been asking the Government to consider a “wage subsidy” scheme to keep workers employed.

Similar schemes are being adopted in the UK, Denmark, Ireland, and South Korea, among other countries, where Governments are subsidising employers’ payrolls to help them retain their staff through the crisis on reduced incomes.


Photo:

In the US, a $2 trillion coronavirus stimulus package has passed. (AP: Evan Vucci)

The Morrison Government rejected that idea this week, saying the best way to help Australia’s unemployed was through the existing payment channels and tax system arrangements, which included Centrelink.

But according to a report in the Australian Financial Review overnight, the Government may have changed tack on that, and could soon announce a wage subsidy scheme.

A former Treasury official, Steven Hamilton, says a wage/payroll subsidy scheme would make far more economic sense for Australia than using Centrelink as the major support for workers.

What the experts are saying about coronavirus:

Mr Hamilton, who worked at Treasury from 2009 to 2012, and who lives in Washington DC, had background involvement in the formulation of the Trump administration’s US$2 trillion coronavirus stimulus package, which passed last week.

He said a component of the US package involved a payroll subsidy scheme for small businesses with fewer than 500 employees.

Businesses can apply for a loan equal to 2.5 months of their payroll and they’ll receive the loan upfront.

The loan must be used for payroll, or rents and leases associated with the business, and the business will be bound to keep the same number of full-time equivalent hours on its books for the next three months. If it does that, the loan will be waived.

“So the Government’s saying ‘keep your workers on and we’ll cover the cheque’,” Mr Hamilton said.

“And that’s exactly what’s needed, right?

“If you think about it there’s this weird, temporary two-to-three month period where everything’s going to stop.

“If you just topped up the revenue of every business that’s suffering revenue losses because of the coronavirus, and they keep paying their workers and their landlords and everything else that they would normally do, it will just be like everyone’s on holiday.

“Businesses won’t lay anyone off or cut any hours, and there won’t be knock-on effects in the economy through lower demand and everything like that.

“Pumping cash into the economy is actually not what you need to do now. And I think people have finally come around to that.”

Topics:

infectious-diseases-other,

respiratory-diseases,

covid-19,

government-and-politics,

business-economics-and-finance,

welfare,

australia

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