Protecting Jobs & Incomes through the COVID-19 economic downturn

Dr. Jim Stanford, Economist & Director at the Centre for Future Work, looks at the details — and flaws — of the government’s $130bn wage subsidy package.

Image: AAP

Just a week ago, the Federal Government announced that it would be undertaking the largest economic stimulus program in Australian history: a $130 billion wage guarantee that will be rolled out over the next six months.

From the day of the announcement, The Australia Institute’s Centre for Future Work has been analysing the detail of this remarkable program and working with others to help fix any potential flaws, including the restrictive qualifications for the millions of Australians employed on a casual basis.

What Australia, and the world, are looking at today is not remotely like any other recession that we’ve experienced. Many economists are expecting a decline in GDP of as much as 20% in the next few weeks and that’s because so much of our economy has forcibly, but rightly, been shut down.

There’s nothing we can do to avoid this immediate downturn in production. In fact, we almost want a downturn to occur — because we want people to stay home. The question is what comes next? How do we protect people through this downturn?

In a matter of weeks, we have seen three increasingly enormous “rescue packages” put forward by the Federal Government.

Importantly, on 30 March, the Australian government announced a massive $130 billion wage subsidy program, to catch up with similar schemes that have been implemented in other countries.

This is a welcome development, attributable largely to the advocacy of the ACTU and its affiliated unions. However, there are several weaknesses in the design of the scheme — most acutely, the fact that it excludes over 2 million short-tenure casual workers and foreign visa workers.

So it’s an unprecedented response so far, and there are a lot of positive things in that. But there are lots of things the government could be doing much better.

Any employer that experiences a 30% decline in its revenue compared to previous patterns, is eligible for the government’s wage subsidy package. If it’s a very large employer, with over a billion dollars revenue, it has to have a 50% decline in revenue.

They can apply for the subsidy to cover some or all of their workforce, and that wage subsidy is paid even if the workers can’t work (because their workplace has been shut down, or there’s just no business). Either way, the subsidy is paid by the government at a flat rate of $1500 per fortnight for each covered worker.

The plan is that this program will last for six months. Hopefully, that will be long enough — if necessary they could always extend that.

There is no doubt the wage subsidy package is a very ambitious and powerful measure to try and prevent companies from having to stand down their workforce.

  • The government has cast the net fairly widely to cover most workers, including sole traders and some casual workers
  • The flat-rate structure of the subsidy means if you’re a low-wage worker or a part-time worker, you’re going to get a very good rate of wage replacement — even if you can’t work. In fact, many part-time workers will make more money than they did when they were working
  • Because this money flowing quickly to employers, it will prevent many stand-downs or mass dismissals of workers — remember, the goal here is to try and prevent a huge surge in unemployment — and stop Centrelink offices from becoming totally overwhelmed.

So the goal here is to keep people in their jobs earning money, even if they don’t really have anything to do — this package will go a long way in helping that happen.

Two large groups of workers have been either completely overlooked or purposely excluded.

  • Anyone who’s a casual worker who hasn’t been with their current employer for 12 months or more — that’s 1.1 million people that will be excluded.
  • And if you’re a foreign visa worker (other than those who come from New Zealand), you are also not eligible. Foreign visa workers won’t qualify for Centrelink for the JobKeeper payment either.

There is no good reason for those casuals or foreign workers to miss out, for those two very large groups to be excluded from being eligible for the wage subsidy package.

  • $1500 per fortnight looks good if you’re a part-time worker. It doesn’t look good if you were earning a full-time wage. It’s only 55% percent of the median full-time wage. So for a lot of people, it’s going be very hard to live off this.
  • The subsidy is paid to businesses, without clear rules and clear protections. There are various ways that this wage subsidy package needs to be strengthened to prevent employers from doing things that go against the purpose of the policy. For example, you may see employers using part-time workers (who they can basically hire for free because the $1500 will cover their whole wage) and using them to replace full-time workers, who the employers would still have to pay using a bit of their own money. Or, employers could cherry-pick who in their own workforces ‘deserves’ this payment and to be kept on and who they want to let go?

So, it is clear that other protections also need to be put in place.

This is, without a doubt, the worst and the sharpest and fastest economic downturn in Australia’s history. So, we are going to go into a recession but we can stop it from becoming another 1930s — where an initial economic shock was terribly mismanaged and resulted in 10 years of stagnation and extremely high unemployment.

If the government acts quickly and strongly enough (avoiding the same mismanagement and austerity measures) we can avoid what we saw happen in the 1930s.

We’re already seeing employers say that we should freeze the minimum wage. That is exactly the same argument (and mistake) that was made in the 1930s.

Business groups said the way to solve the depression is to cut wages, and that only made the depression longer and deeper. The reality is, minimum wage awards have been really important. They’re the only bright light in a miserable wage outlook in Australia. Moreover, right now, with this shock that’s hit our economy, we are already on the verge of deflation. Deflation means overall prices in the economy are falling and a wage freeze would make that even worse. That’s also what happened in the 1930s and it’s a disaster.

In fact, a debate about the need for another Marshall Plan — a kind of a “Covid-Marshall Plan” — has already begun overseas.

The Marshall Plan was a massive plan to rebuild Western Europe after WWII. The Americans and other governments put in masses of public money to support investment in reconstruction and infrastructure. It was a different political time, of course, it was motivated by fear of communism and the desire to cement American influence.

But the principle of using enormous government investment to lead a process of post-war recovery is one that’s still valid today.

We should be thinking of the post-pandemic recovery very much as a kind of post-war reconstruction.

The private sector is going to be in way too bad a shape to lead a normal recovery just by business investment and consumer spending. The public sector is going to have to lead.

There are lots of things that the public sector can be doing as soon as we’re able to — like rebuilding and strengthening the health system. A lot of public infrastructure needs to be built and, of course, there is still a climate crisis to deal with.

The government should be investing tens of billions of dollars into renewable energy generation and transmission and transportation. This is exactly the time to do it because we need all the investment and jobs we can get in housing, public services, a community development. Those will be the engines of growth in the recovery and we need democratic publicly led reconstruction.

Brace yourself because when we start to come out of this crisis, we are going to hear a lot about debt and deficits.

We’ve had the Coalition government singing a single note song for years: that they were put on earth to balance the budget. They never did it. So they weren’t actually very good at it, but it was the wrong goal anyway. Now, of course, that neoliberal ideology is out the window and we will definitely see some enormous deficits, well over $100 billion this year alone.

In the coming years, we’ll probably see public debt grow towards 100% or even more of Australia’s GDP.

This isn’t something to worry about, this is actually something to celebrate.

It shows that the government and public agencies have the capacity to make the investments and spend the money that’s required, to help people through this.

Australia’s public debt coming out of WWII was 130% of GDP and no one cared. Nobody said we can’t fight this war because of the public debt — far from it. And over the last few weeks, you’ll have noticed a deadly silence from the sorts of people who usually are beating the drum for austerity. They’ve been pretty quiet for now, but get ready. We’re going to hear a call for cutbacks, debt reduction, and balanced budgets as soon as the immediate health emergency is over. And we’ve got to resist that very strongly.

It will not be a problem to finance this debt. In fact, it will be absolutely doable, as long as we’re using public investment to put people to work, generate incomes and rebuild our economy.

The only constraint on what we can do as a society is not money. Money is created out of thin air all the time, whether it’s by private banks or nowadays by the Reserve Bank. The only constraint on what we can do is people, our capacity to work and produce, and do what’s democratically required.

Dr. Jim Stanford is an Economist and Director of Centre for Future Work @JimboStanford

an independent think-tank based in Canberra > australia.org.au