IMF spurs debate on JobKeeper extension

The IMF has reignited debate over whether the Morrison government pulled the pin on its multibillion-dollar JobKeeper stimulus program prematurely.

Grattan Institute chief executive Danielle Wood says she was concerned JobKeeper had been canned even though many sectors were still reeling from the shock of the pandemic.

The International Monetary Fund has reignited debate over whether the Morrison government pulled the pin on its multibillion-dollar JobKeeper stimulus program prematurely, after it urged world leaders to maintain job-retention schemes throughout the coronavirus pandemic.

As the global financial institution prepares to release its full economic outlook this week, it praised the key role such programs had played in helping insulate both national economies and workers from the full “shock” of the health crisis and cautioned against removing them too soon.

It said the pandemic had accelerated the decline of many vulnerable sectors, and one-time employees who found themselves out of work during the crisis could struggle to retool and find re-­employment without taking a massive financial hit.

“Looking ahead, although there are many uncertainties, it seems likely the COVID-19 shock will have some permanent effects, hastening a move away from employment that is more vulnerable to automation and less tele­workable,” the IMF said in a chapter of the report released ahead of the full outlook.

“At the individual level, a worker’s likelihood of switching occupations is greater after an unemployment spell than it is while they are still employed. But occupational switches via unemployment are costly, with workers typically incurring a large earnings penalty compared with similar workers who find re-employment without having to change occupations,” the IMF chapter said.

“The findings suggest that countries with fiscal space should maintain support for job retention until the pandemic abates markedly, helping to avoid socially costly unemployment spells and dampen the effects on more disadvantaged worker groups. In particular, the findings suggest that the use of retention policies could be linked to the duration and intensity of the pandemic.”

Economists fear up to 150,000 jobs could be lost in Australia following the government’s decision to wind up its $93bn wages subsidy scheme from the start of last week, with the tourism, hospitality and entertainment industries expected to bear the brunt.

Grattan Institute chief executive Danielle Wood, who has been monitoring the impact of coronavirus on the economy, said she was concerned JobKeeper had been canned even though many sectors were still reeling from the shock of the pandemic.

While Australia’s deficit was forecast to reach $197.9bn this ­financial year, she said she believed the government still had the “fiscal space” suggested by the IMF to have kept the program going.

“On balance, I would argue we do have fiscal space to do more. We have relatively low debt by international standards and we can borrow at incredibly low ­interest rates right now,” she said.

Sydney Business Chamber executive director Katherine O’Regan said the city, which ­relies heavily on tourism and hospitality, had been the hardest hit by the expiration of JobKeeper.