This is what economists make of the the Australian government's latest $130 billion effort to save jobs from the coronavirus downturn

It might not prevent a recession but the government’s economic package will save jobs, economists think. (Photo by Andy Spain, Avalon)
  • The Federal Government unveiled a $130 billion fiscal stimulus package yesterday which will subsidise Australian workers’ wages.
  • The “incredible” spend will save many jobs, CBA economist Gareth Aird said, but will not save all businesses.
  • Nor will it stop the unemployment rate from rising, or even save Australia from a recession, economists agree, but it will go a long way to cushioning the economic pain.
  • Visit Business Insider Australia’s homepage for more stories.

The Australian government’s latest $130 billion economic package is its latest attempt to keep Australians employed and businesses alive over throughout the COVID-19 outbreak.

The economic life-support package included its so-called ‘Jobkeeper’ payment, a fortnightly $1,500 wage subsidy for businesses that keep eligible workers on, as well as a significant expansion of its existing JobSeeker allowance.

“We are living in unprecedented times with the twin battles that we face and that we fight against the virus and against the economic ruin that it can threaten,” Prime Minister Scott Morrison said. “This calls for unprecedented action, governments making decisions like they never have before.”

But just how much will the government’s policies help ease the economic burden of the coronavirus pandemic?

Describing the sheer scale of the package as “incredible”, Commonwealth Bank chief economist Gareth Aird said it should pump the brakes on the number one economic concern right now: rising unemployment.

“[The] JobKeeper [subsidy] will limit the rise in unemployment because many firms who could not afford to retain staff due to a drop in sales as a result of COVID‑19 will now be able to do so. In essence, the cost of labour for impacted firms will drop to zero — or close to zero depending on other arrangements between a worker and their employer,” Aird said in a note issued to Business Insider Australia.

“This is an extraordinary incentive for businesses to retain staff over the next six months as the economy contracts primarily due to the imposed shutdown [or] shutdowns, so on that score we can expect less damage done to the labour market than otherwise.

Of course, it will not save all businesses. Aird concedes “many businesses will struggle financially to remain viable over the next six months” as revenues drop to zero due to shutdown measures and wages only constitute one of many costs for businesses.

On that count, the ability to defer loan repayments for six months combined with a moratorium on evictions will at least help some businesses survive, if not operate. Many Australians then can still expect to lose their job, according to the Royal Bank of Canada’s (RBC) Australian branch.

“We expect a front-loading of job shedding in the next few months with the unemployment rate set to test 9.5-10% by the third quarter, possibly earlier,” RBC economist Su-Lin Ong said. “Today’s package may temper this rise.”

However, the government should be careful not to overhype its own policies, Ong said.

“Coupled with the previous two packages – $17.6 billion and $66 billion, the latter [of which] was not all new money – this now puts total Commonwealth fiscal stimulus close to 10% of GDP and on par with the global efforts,” she said. “We caution against some political spin from the Treasurer [yesterday] as he included the $105 billion of support from the RBA which are funds set aside to lend [and] support the economy but not yet deployed to suggest $320 billion of stimulus or 16% of GDP.”

That accounting error aside, the government’s latest package is still the largest fiscal spend in recent memory, outsizing Labor’s two-year stimulus package during the global financial crisis.

“[It’s] absolutely necessary given the hit to the economy from [COVID-19],” AMP Capital chief economist Shane Oliver said in a tweet. “[It] may not stop [a] recession but [it] will help limit collateral damage and boost recovery.”

Put simply, the Morrison government was right to diagnose 2020 as “the toughest year of our lives”, but there may be light at the end of it.

“The economy will still contract sharply from here and the unemployment rate will rise,” Aird said. “It is inevitable given the enforced shutdown but [this] incredible stimulus package will limit the rise in unemployment and help the economy to recover faster when restrictions on activity are lifted.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.