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COVID 'disaster payments' could be withdrawn within weeks. Will the economy cope? - ABC News

The Morrison government has announced plans to start withdrawing emergency support payments from individuals.

It says once a state or territory has fully vaccinated 70 per cent of people over 16 years of age, it will stop the automatic renewal of the COVID-19 Disaster Payment for individuals.

It says people will have to start reapplying for the payment every week to remain eligible.

And once a state or territory has fully vaccinated 80 per cent of people over 16 years of age, it will withdraw its stimulus payments after a fortnight.

But what will it mean for the workforce?

What the 70 per cent target really means

Firstly, when the government talks about fully vaccinating 70 per cent of people aged over 16 years, it's really only talking about having 56 per cent of Australia's entire population vaccinated.

Why? Because there are 25.7 million people in Australia, but only 20 million are aged over 16.

So it's talking about fully vaccinating 70 per cent of 20 million people, which is a bit over 14 million people (56 per cent of the total population).

The original Doherty modelling said if we ended lockdowns when just 56 per cent of the total population are fully vaxxed it would lead to a rise in COVID cases.

So authorities would have to work extremely hard to prevent the virus spreading and causing more economic damage when economies reopened at that level.

Currently, 53.4 per cent of people over the age of 16 are fully vaccinated.

Now, the Morrison government isn't saying state and territory governments should reopen their economies at those vaccination levels.

However, once vaccination levels hit 80 per cent (of people 16 years and over), the government will be withdrawing its Disaster Payment from individuals quickly.

That will "encourage" state and territory governments to reopen their economies by themselves.

How will the transition work?

There are two steps for the plan.

First, Treasurer Josh Frydenberg says, once a state or territory hits its 70 per cent target, the automatic renewal of the government's Disaster Payment will end.

Individuals will have to start reapplying for the payment every week that a Commonwealth hotspot remains in place to remain eligible.

Second, Mr Frydenberg says once a state or territory reaches 80 per cent full vaccination of its (16 years and older) population, the Disaster Payment will be withdrawn over a period of two weeks.

In the first week after a state or territory hits its 80 per cent full vaccination target, there will be a flat payment of $450 for people who have lost more than 8 hours of work, while eligible people on income support will receive $100.

In the second week, the payment will be brought into line with JobSeeker at $320 for the week for those who have lost more than 8 hours of work, while the payment will end for eligible people on income support.

"The winding down of the COVID Disaster Payment will provide businesses and households with the certainty they need to plan for the future," Mr Frydenberg says.

For New South Wales and ACT residents, the cut to support payments is coming quickly.

Almost 63 per cent of eligible NSW residents are fully vaccinated, while 63.2 per cent of ACT residents are.

In Canberra, the territory is expected to have reached the 80 per cent vaccination threshold by October 15.

vaccinations by state of residence
Level of vaccinations by state of residence, as of 28 September 2021(

Source: Australian Government, "COVID-19 Vaccine Roll-out," 29 September 2021

)

What happens after that two week period ends?

Mr Frydenberg says if individuals still haven't returned to the workforce once an economy has opened up and the Disaster Payment has been withdrawn completely, they will have to apply for the normal unemployment benefit.

He says the government will leave in place the Pandemic Leave Disaster Payment, for those who can't earn an income because they're self-isolating or quarantining, or caring for someone with COVID, until June 30, 2022.

However, the Australian Council of Social Service (ACOSS) is furious with the plan to push everybody onto the unemployment benefit after two weeks.

"It is unconscionable to use broad vaccination rate data as the mechanism to cut off income support to people without paid work, regardless of whether a lockdown has lifted or what the actual vaccination rates are for a range of at-risk groups," ACOSS chief executive Cassandra Goldie says.

"Cutting off disaster support will see many of the 1.7 million people currently receiving Disaster Payments in NSW, ACT and Victoria end up on the grossly inadequate JobSeeker payment of $45 a day, which is less than half the $750 per week COVID Disaster Payment."

What happens when economies start reopening after hitting vaccination targets?

The government hopes economic activity will bounce back when economies start reopening.

It says there are billions of dollars of stimulus circulating in the economy that have boosted national savings — which is true.

See below.

In the June quarter (before the recent lockdowns began in earnest), the household saving ratio was 9.7 per cent.

household saving ratio

The government says those savings, along with pent-up demand, will support a resurgence in economic activity when life gets back to "normal."

However, some economists warn the economic recovery won't be immediate.

Reserve Bank governor Philip Lowe says the recovery from these lockdowns will likely be slower than last year's recovery.

Why will the recovery be different this time?

A key difference this time is Australian households won't be emerging from these lockdowns into a COVID-free community, like they did last year.

Instead, we are told, people will have to learn to live with COVID. 

Economists say it's difficult to predict how Australians will behave when they know the delta variant is circulating in the community.

They say a lot will depend on the level of vaccination in each state, and how comfortable people feel about the virus.

"For the first time Australia will experience 'living with COVID'," Commonwealth Bank economist Gareth Aird wrote recently.

"New COVID‑19 cases will surge on reopening in NSW as has been the case overseas. It will simply be a matter of time before the virus is rampant across the entire country.

"This is likely to mean that there will be a significant period of adjustment for households and businesses as the virus circulates within the community in large numbers and hospitalisations rise."

Any other differences?

Another difference has to do with the level of economic stimulus in the economy.

Carlos Cacho, the chief economist at Jarden, says the conditions are probably right for the economy to bounce back strongly when lockdowns end.

However, he says, the level of fiscal stimulus in these lockdowns is "an order of magnitude smaller than during the initial 2020 lockdown", so households will be relying on their savings buffers to support spending.

"We estimate that total fiscal stimulus over August was worth $6.5 billion, compared with an average of $27 billion a month over the second half of 2020," he wrote earlier this month.

Jarden estimates level of government support in the economy (September 2021)

"This is important because it means the rebound in activity could be more modest, and there is likely to be limited support for business profits from fiscal stimulus.

"That said, there are still significant buffers built up over 2020 which should help to offset this, with household and business cash deposits $61 billion and $96 billion above their pre-COVID run rates," he said.

What about employment?

The government hopes the level of stimulus circulating in the economy will help the labour force recover quickly.

Hundreds of thousands of people have left the labour force since May.

According to the Bureau of Statistics, the size of the labour force declined by 199,000 between May and August, with employment shrinking by 117,300 people.

But those are national figures. The figures for New South Wales and Victoria are much worse.

ACOSS fears it will be far more difficult for people who aren't working to rejoin the labour force when economies reopen, because it won't be situation normal.

With the virus circulating in the community, many people could be hesitant about participating fully in daily life.

And if the economic recovery is slower, it could take longer for unemployed people to find employment.

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2021-09-29 06:10:14Z
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