Australians have amassed $200 billion in pandemic savings – and the government wants them to spend big as it slashes support

Australians are ready to spend again, after bolstering their savings accounts during the pandemic.
  • Australians have stockpiled around $200 billion in savings during the pandemic, anticipating a worse economic crisis.
  • The money, largely accrued from record government spending measures, will help stimulate the real economy as programs such as JobKeeper and JobSeeker are wound back, Treasurer Josh Frydenberg said.
  • However, coming as government support falls away and while unemployment remains high, there are “no guarantees” the spending will help local businesses, Shadow Treasurer Jim Chalmers said.
  • Visit Business Insider Australia’s homepage for more stories.

Having squirrelled away savings for an averted economic crisis, Treasury is counting on Australians to dip into their rainy day funds.

Published on Wednesday, new Treasury analysis confirms Australians penny-pinched their way through 2020, as household savings climbed by more than $112 billion during the year to November.

The uptick means the household savings ratio – the ratio of savings to income – now sits at 18.9% according to separate RBA statistics, up from less than 5% prior to the pandemic.

Partly reflective of the uncertainty produced by the pandemic, and the more direct impact of it on Australia, the ratio is roughly twice that recorded during the global financial crisis (GFC).

Having peaked at 22.1% however in June, it does show that some of that money is being spent, making its way back into the real economy.

For individuals, the extra buffer is significant. The average Australian’s savings could last them up to four months according to separate analysis from Rabobank. That’s up two weeks from before the pandemic, with Australians increasing their monthly savings rate from $815 to $978.

Businesses, excluding financial institutions, meanwhile put aside another $104 billion in deposits during the pandemic preparing for the worst.

Follow the money

The war chest is of course the product of more than just frugality.

Since March the federal government has unleashed the largest spending program seen in a century, costing more than $200 billion, as it tried to inoculate the national economy against the worst of a global recession.

The efforts have proven broadly successful so far. While hundreds of thousands of Australians lost jobs as a result of the downturn, unemployment, which was originally projected to hit 13% by Christmas, rang in the New Year at just 6.8%.

In other words, while the economic cost has been high – even more so for those who lost jobs – it could have been much worse.

Eyes turn to the economic transition

Debate rages over when is the right time to cut support measures such as JobKeeper, and how much damage will become apparent once the veil has been lifted. The federal government, sticking to its timeline, now says those savings stockpiles need to make their way out of deposit accounts and into businesses, stimulating the economy and creating jobs.

“With an additional $200 billion sitting on household and business balance sheets compared to the start of last year, there is a huge sum of money available to be spent across the economy helping to create jobs and maintain the momentum of our economic recovery,” Treasurer Josh Frydenberg said.

Commonwealth Bank analysts tend to agree.

“The tapering of government support should be more than offset by consumers spending the … savings that have been accrued through 2020,” chief economist Stephen Halmarick said.

Analysts are anticipating Australians will slowly begin loosening the purse strings if they believe the crisis is largely over.

“Consumers are still cautious. Their sentiment typically changes more slowly than business sentiment and probably has some way to go to recover to pre-pandemic levels,” Oxford Economics analysts wrote in a briefing note this week.

“With the vaccine rollout bearing fruit come spring, strong balance sheets might just embolden consumers to go on a spending spree.”

There are ‘no guarantees’

Separate CBA analysis meanwhile shows spending rose 13% in its first week of January, suggesting an opening of the war chest may have already begun.

But it will need to be spent over months and flow locally to make an impact, Shadow Treasurer Jim Chalmers said, at the same time that Australians may again feel the pinch.

“We need to see more of this money circulating in small businesses and local economies doing it tough but there are no guarantees,” Chalmers said on Thursday.

“[The Treasurer’s] plans to cut wages, to cut super, and wind back consumer protections in the banking system could weaken the recovery and leave too many Australians behind.”

The federal government is unlikely to budge however. The removal of JobKeeper, the return of JobSeeker to controversial pre-pandemic levels, and the windback of business cash flow relief now looks imminent.

Frydenberg and Treasury are instead pinning their hopes on different forms of stimulus to smooth the transition period. Largely, that means the JobMaker credit, which subsidises hours for younger workers, an infrastructure spending spree, tax cuts, and business incentives.

Whether or not the Morrison government can get the timing right remains to be seen.

The latest job figures show that even a record hiring spree will help put the country back to work, but will need to be sustained if its to get unemployment back to the 5% seen pre-pandemic.

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