Reserve Bank’s Guy Debelle says a September end to wage support would be ‘a problem’

The Reserve Bank’s deputy governor has warned the government against ceasing its massive wage subsidy program in September.

Deputy RBA governor Guy Debelle says pandemic support will be needed for some time. Picture: AAP

The Reserve Bank has warned that ending government wage support for pandemic-hit workers in September “would be a problem” for the economy.

The Morrison government may reveal in the next few days its plans for the JobKeeper wage support program and higher JobSeeker payments, which are scheduled to end in September.

The months ahead are likely to be dominated by a debate around when the government should roll back the programs, which have done a lot to soften the blow of the pandemic.

Reserve Bank deputy governor Guy Debelle warned on Tuesday the hit to growth caused by the COVID-19 pandemic would be “long-lived” and require policy support for year to come.

He said an end of government support in September would be a significant issue.

“If everything ceases at the end of September, yes that would be a problem,” he said in a webcast from his office to a conference of economists.

Mr Debelle said the bank and APRA were mindful of increasing business insolvencies, despite liquidators so far finding themselves largely unused.

“They’re concerned they’ve not got enough work, They’re not quite there yet but give the size of the downturn it’s going to come,” he said.

Mr Debelle warned of the impact job losses could have on future wage earnings from workers who lost their jobs.

“The scarring effects of unemployment - absolutely it’s going to have an impact going forward,” he said, “This has been a major event in the economy, it is going to have longlasting effects.”

But he said the JobKeeper scheme was doing well to maintain the connection and avoid the wage scarring from job losses.

“If you maintain the attachment between a business and workers then that potentially reduces some of the impacts,” he said.

Mr Debelle said there was “considerable uncertainty” over the future.

“This uncertainty includes the behavioural responses as health restrictions are eased. There is also considerable uncertainty about the future, which will affect the decisions of businesses and households.”

He said the RBA would maintain current policies to keep borrowing costs low and credit available, and was ready to do more as the circumstances warranted.

The RBA stood ready to scale up its government-bond purchases if the economy weakened further.

Recent economic data had indicated the economy had not been hit as hard as initially feared, but the impact had nevertheless been historically large, Mr. Debelle said.

“The fiscal and monetary support that has been provided was, and remains, warranted,” he said.

The central bank slashed its cash rate to a record low 0.25 per cent in mid- March as entire sectors of the economy were shut down to curb the spread of COVID-19.

It has reiterated that the cash rate target will not be raised until it achieves the inflation and employment goals.

“Given the outlook for inflation and the labour market, this is likely to be some years away,” Mr Debelle said.

With Reuters