Coronavirus: Strong rebound means cuts to JobKeeper won’t halt recovery, say economists

A war chest of cash will help households and the economy make the transition away from emergency income support.

A war chest of cash will help households and the economy make the transition away from emergency income support. Picture: Getty Images

Phasing out the JobKeeper pandemic wage stimulus payments will not be enough to derail Australia’s robust economic recovery as the nation’s housing and manufacturing sector ended the year in rude health, experts say.

From Monday, the federal wage subsidy was reduced to $1000 a fortnight for eligible full-time workers, and to $600 for part-time employees. The scheme is due to expire on March 28.

Anthony Albanese renewed his attack on the transition plan, saying it was “premature” to withdraw support while there were “millions of Australians who continue to do it tough”.

“There needs to be a withdrawal at some time in the future of additional payments in terms of JobKeeper support,” the Opposition Leader said in Sydney.

“And JobSeeker … should be increased permanently.”

Josh Frydenberg said the government always said the support was temporary and was “desi­gned to taper off as economic confidence and momentum builds”.

“We’re seeing that (recovery) through the 734,000 jobs created over the past six months, with fewer businesses and their employees in need of JobKeeper and other temporary economic support,” the Treasurer said.

As of November, there were more than 1.6 million people receiving unemployment benefits, or close to 700,000 more than before the pandemic hit, according to the latest numbers from the ­Department of Education, Skills and Employment.

On that basis, the reduction in the fortnightly JobSeeker supplement from $250 to $150 will remove $160m in support from the economy in each payment period.

But ANZ economist Adelaide Timbrell said Treasury’s transition timeline was based on a much slower economic recovery than the one experienced over the past six months. “As a result, that wind-down of support is likely to have significantly less fallout” in terms of additional unemployment, Ms Timbrell said.

Additionally, the JobSeeker and JobKeeper supports have “allowed a lot of people to save more money”, and those cash reserves are likely to cushion the fall in ­income for many, although not all, households.

Analysis by The Australian of APRA banking data released on Monday shows households have added $110bn to bank deposits ­between February and November, well up on the $36bn in the preceding nine months.

Confirmation that house prices climbed by 3 per cent in 2020 despite the country suffering its first recession in nearly three decades would add to consumer confidence, Ms Timbrell said.

“Growing housing prices are also a signal to people in general that the economic outlook is strengthening,” she said.

Meanwhile, the latest monthly survey from IHS Markit shows Australia’s manufacturing sector “continued to recover at one of the strongest rates seen over the past three years in December, with output, order book and employment growth accelerating”.

Markit’s purchasing managers’ index dipped to 55.7 points in December, from 55.8 a month before, where a reading above 50 indicates lifting activity. The survey was conducted prior to the latest COVID-19 outbreaks.

The report shows many manufacturing firms struggled to boost capacity sufficiently to meet the recent surge in demand, despite the sector taking on extra staff at the fastest rate for two years.