Coronavirus: $130bn wage subsidy package our best hope of avoiding a calamity

The government’s wage subsidy package is massive and unprecedented. An outlay of $130bn in six months is the single biggest in our history.

It’s huge but necessary — the best hope we have of avoiding economic calamity the coronavirus has prompted. By keeping workers in work, attached to their employers, it will lessen the surge in the official jobless figure that the nation was facing. More of them will be interacting with their employer than with Centrelink.

It’s the gold standard of wage subsidy schemes globally, dwarfing those of other nations. New Zealand’s is budgeted to cost about $NZ12bn, Britain’s is about £10bn ($20.1bn).

It applies to workers who’ve already been stood down, those who were about to be and those in businesses that have experienced a 30 per cent fall in revenue.

Unlike schemes in Britain and Canada, it will include almost every category of affected worker: full-time and part-time, some casuals, sole traders and those already laid off. About six million workers will benefit, Treasury estimates, a little under half the labour force.

It’s a German idea — the European nation that successfully pioneered wage subsidies in the global financial crisis — being applied with Australian egalitarian characteristics.

Under the Morrison plan, all workers will receive the same amount: $1500 a fortnight. In Britain by contrast, up to 80 per cent of workers’ wages are paid, capped at £2500 a month.

The payment, about $39,000 a year, is about 100 per cent of the median wage in sectors most affected by the shutdown: retail, hospitality and tourism.

New Zealand is paying a subsidy at the relevant minimum wage of about $580 a week.

“The NZ scheme should have gone further,” said Oliver Hartwich, chief executive of New Zealand Initiative, a free-market think thank.

Comparing countries’ responses is tricky because the components vary: loans and guarantees aren’t the same as direct fiscal spending. Take-up of subsidies is uncertain.

Still, with a total government support of well over 16 per cent of GDP, Australia now sits towards the upper end of the pack with the UK. These compare with 4 per cent of GDP in New Zealand and about 10 per cent in the US.

Like any government scheme, it will inevitably be abused. Initially ruling one out, the Prime Minister noted how wage subsidy schemes required new payments and bureaucratic infrastructure, which were “never done quickly and never done well”. The tax office will struggle to oversee the JobKeeper payment without a hitch. Some businesses will fiddle revenue figures to ensure they qualify. Some firms won’t pass on all the payment to their staff.

Nevertheless, government has ordered swaths of the economy shut, and has moral and economic responsibilities to compensate businesses and workers as much as it can. The wage subsidy will be the most important component of the government and Reserve Bank’s combined $320bn package.