Josh Frydenberg is promising extra billions to coax nervous employers to take on workers, in a strategy he hopes will see the nation’s unemployment rate peak at 8 per cent at the end of 2020.
If you think this forecast is overly optimistic, you would be right.
As Treasury notes, with the pandemic still evolving, the range of possible outcomes for unemployment is “substantially wider than normal”.
In other words, treat the jobless rate forecasts in Tuesday’s budget with a high degree of scepticism.
With an extraordinary $101bn committed to the JobKeeper program until March 2021, the new wage subsidies announced in the budget are pitched by the government as a better way of spending taxpayer funds.
More than $5bn will be made available to employers to take on apprentices, trainees and what the government calls “young” jobless, even those recipients can be aged up to 35 years old.
After predicting in the mid-year update that the unemployment rate would rise to 9.25 per cent by the end of 2020, Frydenberg is banking on the lower 8 per cent peak falling to 7.25 by July 2021 and 6.5 per cent a year later.
By mid-2024, the unemployment rate is forecast to 5.5 per cent, still above pre-pandemic levels.
Even then, the forecasts are predicated on all major COVID-19 restrictions, with the exception of Western Australia’s border closure, being lifted in the next three months and a vaccine for the novelle coronavirus being available nationwide by the end of 2021.
It is little wonder that Treasury is noticeably cautious in its budget commentary about the ongoing strength of the labour market.
While noting the unemployment rate would have soared to 12 per cent and stayed there for almost another two years without the government’s intervention, it acknowledges there is a risk “the substantial dislocation that has occurred in the labour market could result in persistently higher unemployment than forecast”.
The outlook remains “highly uncertain”, it says, and the range of possible outcomes for “unemployment in particular is substantially wider than normal”.
After the 1990s recession, it took about two years for economic growth to return to previous levels, but an entire decade before the unemployment rate fell back below 6 per cent.
Treasury says it now will take almost four years to get the current unemployment rate back below 6 per cent.
But you wouldn’t bet on it. Just ask them.
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