MICHAEL KEATING.. What should we do with the $60 bn left over from JobKeeper?May 30, 2020
The discovery of an error of $60 bn in the costing of JobKeeper raises the issue of what should be done with this money? However, as JobKeeper was always incomplete these deficiencies should be the first call on this extra money.
As is well known the cost of JobKeeper was over-estimated by as much as $60 bn. Understandably this has started a debate about what should be done with the money, with some arguing that the money should be returned to the budget, and others promoting other worthy ways of spending it.
I have argued in a previous post, (Pearls & Irritations, 21 May)MICHAEL KEATING. When should the budget deficit be unwound?, that a budget deficit which matches a shortfall between aggregate demand and the supply capacity of the economy can readily be financed out of the excess savings that are therefore available. In other words, we should not treat the budget deficit as an objective of economic policy, but rather as an instrument to balance demand and supply in the economy and thus help the achievement of full-employment and increasing living standards.
Against this background, it is useful to consider the dual purposes of JobKeeper. The first is to maintain demand by paying people who would otherwise be unemployed so that they can keep spending at their previous rate. The second is to maintain the supply capability of the economy, by ensuring that businesses that would otherwise close or substantially reduce their hours can instead maintain their ongoing relationships with their employees, suppliers and customers, and can readily re-expand when restrictions are lifted.
In that case, if it costs $60 bn less to meet these purposes, and thus maintain the balance between demand and supply, there is a prima facie case for returning that $60 bn to the budget.
However, JobKeeper, while being a very useful initiative, was always incomplete and inadequate and more assistance will be needed to fully achieve its purposes. Accordingly, there is a strong case against the return of all of the $60 bn for the following reasons.
First, as many have pointed out as many as two million employees are not eligible for JobKeeper payments. These employees include casuals who have been with their employer less than 12 months, temporary visa holders – many of whom have been here for years as they wait to become permanent Australian citizens – employees of universities, and employees of some foreign businesses.
Quite apart from the evident unfair discrimination against these people, they all contribute to the Australian economy in just the same ways as other employees who are eligible for JobKeeper: their wages are used to pay for Australian goods and services, and these employees’ contribution to the supply capacity is no different to any other employees. Indeed, there are some agricultural industries that are heavily dependent on these non-eligible employees.
So consistent with the original purpose of JobKeeper it would make sense to expand its coverage to include all these groups of employees.
Second, as the lockdown restrictions are being lifted progressively, the pace of economic recovery is likely to be most uneven across industries.
There are some industries and firms whose turnover may well have recovered sufficiently that they would no longer be eligible for the scheme before the end of September. Arguably the review of JobKeeper in June should adjust the eligibility conditions so that payments cease where firms’ turnover has recovered sufficiently.
However, there are other firms whose turnover is most unlikely to have fully recovered by the time when JobKeeper payments cease at the end of September, and it would be best if their assistance continued a while longer.
In addition, there is likely to be some long-term damage to the economy from the recession. In particular, the government is expecting net overseas migration to fall by 30 per cent this financial year and by 85 per cent next year. As migration accounts for a bit more than half of Australia’s population growth, this fall in immigration will have a significant detrimental impact on housing demand.
Already the housing industry is calling for assistance in the form of a government grant for new home purchases. Personally, I am sceptical about such grants – because of supply constraints, they have mostly disappeared in price increases in the past. This time, such supply constraints may not be so binding, but it would be more equitable to take advantage of the opportunity to build more social housing, for which there is a dire need.
Other industries that will clearly require more ongoing funding are education and training, especially universities which were being heavily cross-subsidised by foreign students, and the arts. In both cases, JobKeeper has not provided an effective lifeline, and their capability has been damaged so that they will not get back to their previous levels of employment quickly once the restrictions are lifted.
Finally, the increased debt incurred by both households and business will overhang the economy for some years. Spending will not resume at previous levels quickly as people try to repay their debts and restore their savings. In these circumstances governments should continue providing some support and that will slow the reduction in the budget deficit.
Whether these various additional demands on the budget add up to $64 bn is a matter of detailed arithmetic. But that is what the Treasury should be counting now, and that should guide what is done with the newly found $60 bn.