COVID-19 stimulus may not provide the hoped for boost as JobKeeper tensions mount
Today’s the day.
After weeks of chaos, mass lay-offs and scenes of desperation as thousands queued outside Centrelink offices for government relief, the money finally will start to flow via JobSeeker.
For those newly unemployed who have hung on since the end of last month, racking up debts and trying to negotiate with banks and landlords, the financial assistance will come as a blessed relief.
But businesses without any income that have been forking out emergency payments to those workers they want to keep on will have to wait another week before they see some cash, as compensation from the Tax Office begins to flow through.
Like any scheme hatched in haste during the midst of a crisis, the JobKeeper payment plan — hailed as a “game changer” when announced — has had its fair share of trouble and no shortage of critics.
There’s no denying the Morrison Government’s stellar record to date when it comes to managing the health crisis. Infection and mortality rates have been much lower here than in comparable Western democracies.
But that success could be its own undoing as pressure builds to prematurely wind back the restrictions currently causing serious economic upheaval and vast pain and suffering.
Those calls to ease restrictions have been amplified by growing frustrations from those thrown out of work and those struggling to keep businesses afloat over the delay in payments and uncertainty over how long the restrictions will remain in force.
The balancing act between beating the pandemic and shoring up the economy for the future has never been more delicate.
JobKeeper tensions on the rise
The JobKeeper scheme was almost universally welcomed by businesses, workers and economists when it was launched a few weeks back.
It provides employees laid off as a result of the restrictions a much better deal than normal unemployment payments, and a slightly higher payment than the double dole, now known as JobSeeker.
Plus, it maintains a vital relationship between employer and worker that may well speed up the recovery.
For the Government, it has the handy side effect of not registering vast numbers of laid-off workers as unemployed. Technically, they’ll still have a job and, to reinforce that point, they won’t be paid by the Federal Government.
They’ll be paid by their firm which then will reclaim the cash.
As a result of the scheme, it is possible that official unemployment may not rise above 10 per cent when it otherwise would be more than 15 per cent.
Even at 10 per cent, that puts the economy into a deep recession — one that could scar an entire generation.
This graph, from investment bank Morgan Stanley, indicates just how much greater the pain is likely to be compared to the 1991 recession and Global Financial Crisis. And that’s with the JobKeeper program in place.
The problem for businesses, however, is that the scheme requires employers to pay staff the $1,500 a fortnight and then claim the cash back from the Tax Office, backdated until March.
That payment delay for the past month has made it extraordinarily tough for businesses who’ve lost a significant portion of their revenue. For those that have completely shut, and are still trying to pay rent, it’s been impossible.
Last week the Treasurer Josh Frydenberg exhorted business owners to head to the bank and borrow to plug that gap after some torrid phone meetings with the major banks.
But therein lies another problem. While the banks signed up to “Team Australia” amid a great deal of fanfare, it would appear their commitment was as much about restoring their tarnished image than splashing cash about.
So far, reports indicate they have lent just $700 million to tide over businesses on the $130 billion program.
There also has been confusion over the eligibility of workers. A chief executive of one major entertainment business told your correspondent that his firm had forked out $1 million to its large contingent of 16-year-old and 17-year-old employees, only to discover afterwards that they’d been excluded.
In addition, the Reserve Bank committed $90 billion to the banks to keep credit lines open for small and medium-sized businesses.
While little detail is available on the extent of the take-up of those loans, anecdotal evidence suggests business owners have been unwilling to plunge into debt during a period of such uncertainty.
Despite the Government’s best intentions, the program has squeezed the meagre resources of many business owners, draining them of cash at a time when they can least afford it.
Will toilet paper save us from recession?
The data last week was expected to be bad. Instead, it was unremittingly horrible. Offshore, industrial activity indicators from Europe, the UK and the US registered numbers that were truly breathtaking.
The UK index came in at 12.9, the lowest ever. To put it into context, anything less than 50 normally is a concern.
In the US, another 4.4 million Americans registered for unemployment benefits as US home sales plummeted 15.4 per cent.
Here at home, consumer confidence had its biggest single fall since the data was collected, as the graph below shows.
There were other surprises, too. The extent of the hoarding that stripped supermarket shelves of necessities during March exceeded everyone’s expectations.
Retail sales in March leapt 8.2 per cent — the biggest rise ever, as this graph from investment bank UBS shows, as panic buying gripped the nation.
Remember, these figures are for all retail, not just food, groceries and alcohol.
Normally, the movement is in decimal points of a percentage point.
But the extent of the frenzy, which saw supermarkets notch up their biggest gains in history, is made all the more incredible when you consider the cataclysmic fall elsewhere in retail land after department stores and niche retailers shut their doors, leaving shopping malls almost completely devoid of customers.
The graph below charts the extent to which Australians have abandoned malls and reined in discretionary spending as a result of the lockdowns.
Incredible as it may seem, it is possible the rush for toilet paper, flour and other essentials may prevent our economy from falling in recession in the first half of the year.
A recession involves two back-to-back quarters of contraction, or negative GDP numbers. Household spending makes up the bulk of GDP. And retail sales are a big component of household spending.
Given the incredible lift in retail sales, combined with a relatively good performance from our export sector, it is possible the March quarter may just scrape across the line as a positive quarter.
Most retail surveys indicate the trend reversed in April, meaning the June quarter undoubtedly will be negative. So we won’t see a bog roll led recovery.
All of which just goes to show how useless GDP is in measuring our economic performance. All you need to do is look at unemployment.