Economy in hibernation funded, but not out of the woods yet
After weeks of coronavirus-related stimulus announcements, Federal Parliament convened on Wednesday 8th of April to legislate the latest tranche of funding to protect employees and employers struggling to make ends meet within an economy in hibernation.
Treasurer Josh Frydenberg introduced four Bills, two of which created the $130 billion JobKeeper scheme while the other two provided the necessary funding to do so out of the Consolidated Revenue Fund. While the Opposition made a show of moving amendments aimed at including Australia’s casual workforce in the proposed JobKeeper payments, all four Bills passed both chambers in their original form and with no added provisions.
The Bills received assent a day later, on Thursday 9th of April, once again highlighting the Parliament’s capacity for extreme productivity in extreme circumstances, when politics are put aside. In the lead up to the latest sitting session, Opposition Leader Anthony Albanese emphasised the “constructive” approach that the Labor Party would be taking when debating the legislation. Although constructive essentially meant compromising, the Opposition did not completely let the Coalition off the hook, as it worked hard to launch a Senate Select Committee on COVID-19. Chaired by Labor Senator Katy Gallagher, and due to report on, or before 30 June 2022, the Committee will examine the Australian Government's response to the COVID-19 pandemic, and any related matters.
Striking a positive note after the Easter long weekend, Federal Health Minister Greg Hunt offered an optimistic perspective about Australia’s chances to flatten the curve. On Monday 13th of April, Mr Hunt noted that the growth rate of new cases was now below 2 per cent a day, and dropping. And while he thanked Australians for their cooperation in practising social distancing, he also credited the Federal Government and National Cabinet’s strict guidelines, in line with Prime Minister Scott Morrison’s consistent praise for the effectiveness of the newly established Cabinet. So impressed is Mr Morrison with its success that he has even floated the idea of making it a permanent body after the coronavirus pandemic has passed. He would have to get his state and territory counterparts on board first, yet it may not be such a bad idea if it facilitates improved communication and collaboration between the jurisdictions and the Commonwealth.
The National Cabinet, established in March, has taken on a crisis leadership role, bringing together all of Australia’s leaders, comprising the Prime Minister, State Premiers and Territory Chief Ministers, in addition to chief medical officers, to coordinate a national response to the pandemic. Even though states and territories have not always toed the line, as evident by differences in opinion around school closures and international arrivals earlier in the process, many have further strengthened the national effort by enforcing stricter social distancing measures and their own stimulus packages. That’s on top of Commonwealth funds pledged to prop up the nation since earlier in March, with the most recent injecting $130 billion to defend jobs. Introduced on Monday 30 March, and legislated on Wednesday 8th of April, this formed the third tranche of monetary stimulus, now totalling close to $320 billion of federal funding thrown at the crisis, representing 16.4 per cent of Australian GDP.
Despite positive headlines around flattening the curve, JobKeeper scheme legislated fast, and up to 800,000 businesses having already applied to access it, the Treasurer has this week warned that Australia is not out of the woods yet. On 14th of April, Mr Frydenberg announced that Treasury was expecting the nation’s unemployment rate to rise from 5.1 to 10 per cent in the June quarter. Previously, that estimate expected unemployment to peak at around 15 per cent without the Government’s stimulus interventions.
The most recent ABS data, covering the March quarter released on Thursday 16th of April, showed unemployment rate rose to just 5.2 per cent in March, up from 5.1 per cent in February. This is slightly below economist forecasts of a jump to 5.4 per cent, however it likely does not mirror the full impact of COVID-19 related shutdowns befalling businesses in March. Aligned with Treasury’s outlook, economists warn of the jobless rate rising to 12 per cent by mid-year.
Reserve Bank of Australia (RBA) Governor Philip Lowe's assessment delivered on Tuesday 21st of April isn't much rosier than that. “Economic forecasting is difficult at the best of times. It is even harder at times like this when we are experiencing a once in a lifetime event,” his speech began with. A direct outcome of the much-needed effort to contain the virus spread has seen normal activities come to a halt, Mr Lowe said, clarifying that while restrictions are in place, Australia is missing out on the economic benefit of jobs and incomes. “The result of both the restrictions and the uncertainty is that over the first half of 2020 we are likely to experience the biggest contraction in national output and income that we have witnessed since the 1930s,” his forecast notes. In addition to expectations for the unemployment rate hovering around 10 per cent by June, the RBA outlook also flags national output likely to fall by around 10 per cent over the first half of the year, with most of this decline taking place in the June quarter; and total hours worked in Australia likely to decline by around 20 per cent.
“We can be confident that our economy will bounce back and that we will see it recover,” the Governor added. “We need to remember that once the virus is satisfactorily contained, all those factors that have made Australia such a successful and prosperous country will still be there. Inevitably, the timing and pace of this recovery depend upon how long we need to restrict our economic activities, which in turn depends on how effectively we contain the virus.”
Alongside RBA policy, Governor Lowe has urged the federal government to put tax reform on its agenda as part of the recovery strategy.
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