Coronavirus emergency aid: ending it the hard part

Reserve Bank Governor Philip Lowe has warned that a “premature” withdrawal of fiscal stimulus could damage the recovery. Picture: AAP

When the Government turned on the fiscal tap to support the economy through the COVID-19 crisis, the hard part was always going to be turning it off.

Already a conga line has formed, demanding the tap stays on.

The surprise is that the leader of the push is Reserve Bank boss Philip Lowe, who worries about an effective fiscal tightening at the end of September, when the JobSeeker increases and Jobkeeper payments stop.

That is also when the banks will end their mortgage “holidays”.

The banks weren’t really offering you a holiday - all they were doing is saying don’t bother paying us back for a while.

The banks will actually make more money from you because they will extend the term of the loan, so don’t think you were getting any handout.

JobSeeker was increased from $550 to $1100 a fortnight as part of the rescue package and there is debate about how much it should be cut back.

That is a separate exercise from the fiscal stimulus Governor Lowe is talking about.

If the JobSeeker payment should be permanently higher, then so be it.

JobKeeper is the money being paid to help people stay in a job and this is the bit that worries economists.

Some say it should be phased out, or paid to certain sectors which have been doing it tough in the shutdown.

At some point the tap needs to be shut off and the sooner we have some timetable for that the better it is for everyone.

The reality is that if the economy falls by five per cent this year it is going to take until the end of 2022 to return to 2019 year-end levels, because simple maths shows it takes more than a five per cent increase to get back to square one.

The same goes for the unemployment rate.