Deloitte Modelling Predicts Return to Pre-COVID JobSeeker Would Further Shrink Australian Economy

September 15, 2020 Updated: September 16, 2020

A new report published on Tuesday by Deloitte Access Economics has predicted that cutting JobSeeker will shrink the size of the Australian economy which is already in recession due to social distancing measures needed to manage the spread of COVID-19.

The report (pdf), commissioned by the advocacy group Australian Council of Social Services (ACOSS), predicted that if JobSeeker is reduced to the pre-pandemic levels, spending will drop and cause a $31.3 billion reduction in the size of the economy over the next two years.

Meanwhile, the cuts to the Coronavirus supplementary payment would reduce government borrowing by an average of over $23 billion across both 2020-21 and 2021-22 financial years.

The modelling also predicted that 145,000 full-time jobs could disappear over the next two years, which equates to an estimated 1.28 percent of employment.

Deloitte argues this would create a large and sustained negative shock, and that there would be a measurable contraction in the broader Australian economy with rural regions to be hardest hit.

“There is much inherent uncertainty in the economic future we face in the next few years, and we know that it will be tough,” the report said.

“Premature removal of the Coronavirus Supplement, and a failure to permanently lift the base rate, would hit hard not only for those among our most disadvantaged, but also for Australian society as a whole,” the report noted.

The JobSeeker Coronavirus Supplement has temporarily doubled unemployment benefits since April, with people receiving a $550 supplement each fortnight atop the base rate unemployment payment of $565.

The supplement will be cut by $300 a fortnight on Sept. 24, reducing JobSeeker to $815.

Deloitte Access Economics Partner Nicki Hutley said in a media release on Sept. 15 that the report showed every dollar the government had invested in JobSeeker was generating an economic return that was allowing Australia to pull itself out of the recession.

“Providing people without paid work with enough to get by is a highly effective economic stimulus, as they have little choice but to spend straight away on essentials,” said Hutley, noting those on higher incomes were currently more likely to be saving than spending.

“This is why other measures, such as income tax cuts, would not be as effective in getting us out of this recession,” Hutley said.

CEO of the Australian Council of Social Service Dr. Cassandra Goldie agreed with the assessment, noting that it was one of the best things the government could do to support Australia on the long road to economic recovery.

Goldie called on the federal government to legislate a permanent and adequate JobSeeker rate.

“There are a lot of things that are not in our control in this pandemic, but one thing that the government does have control over is ensuring that everyone has enough to cover the basics of life, including a safe place to live,” Goldie argued.

“People and businesses need this certainty in order to be able to rebuild—they need to know that the government has their backs,” she said.

But not everyone agrees.

New South Wales (NSW) Agricultural Minister Adam Marshall has criticised JobSeeker for being a financial disincentive to those seeking employment, the ABC reported on Sept. 8.

“Why would they want to come out here and do some hard labouring work when they can earn money at home doing absolutely nothing?” he said.

Marshall is worried because the NSW agricultural industry is facing a predicted shortage of 20,000 workers between now and Christmas.

“If we don’t find a way to resolve this workforce shortage very, very quickly, we’re going to potentially hobble a sector that has the chance to bring in a huge amount of additional money to our economy,” Marshall noted.

Earlier modelling released by the Bankwest Curtin Economics Centre argued that while the coronavirus supplement was necessary during the pandemic, it should be adjusted down to provide an incentive for people to work, reported the Sydney Morning Herald on July 2.

Centre Director Alan Duncan noted that the pre-pandemic base rate of JobSeeker, previously known as Newstart, would not provide an adequate basic standard of living.

“The cost of raising JobSeeker and related payment rates, principally Youth Allowance, by $200 per fortnight is relatively inexpensive, at around $3.8 billion over the six months following the withdrawal of the current coronavirus supplement,” Professor Duncan said. The $550 supplement would cost $11.2 billion over six months for 1.76 million unemployed in the December quarter and 1.5 million in the March quarter for 2021.

Prime Minister Scott Morrison said on Sept. 15 that the government is now shifting its focus away from financial aid like JobKeeper and JobSeeker, which were created to help people survive the initial COVID-19 economic crisis.

“We don’t just want to get through,” he told business leaders in New South Wales.

“We need businesses to have the confidence to grow and to employ more people.”