The Morrison government has doubled down on withdrawing JobKeeper at the end of March after data showed households and businesses had squirrelled away more than $200 billion in extra savings.
Data from financial regulator APRA shows household deposits increased by almost $113 billion, or 11.4 per cent, between the start of January and the end of November last year, while non-financial business deposits increased by almost $104 billion or 17.6 per cent.
The massive run-up in savings has convinced Treasury that the economy will no longer fall off a “fiscal cliff” when JobKeeper is removed on March 28, as households and businesses will have more than $200 billion of extra cash to spend and invest.
“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 in a statement.
New modelling from Treasury also shows the government’s stimulus package will lead to economic activity or real GDP being 5 per cent higher in 2020-21 – and 4.5 per cent higher in 2021-22 – than it otherwise would have been without the support.
The modelling comes after Mr Frydenberg told media earlier this week that JobKeeper was only ever a temporary program and other measures would continue to help the economy after its removal.
JobKeeper was initially designed to run from March 2020 until the end of September, but in July the government extended it to March 28, 2021.
Economist Cameron Murray said it made “total sense” to withdraw JobKeeper at the end of March.
A post-doctoral research fellow in the Henry Halloran Trust at the University of Sydney, Dr Murray said businesses were already flush with cash and only a few industries still needed support.
He said the turnover test for JobKeeper was “the biggest joke ever” as companies could “choose the time at which expenses and incomes are incurred” and consequently qualify for the payment without suffering an actual drop in turnover.
Lifting the permanent JobSeeker rate would therefore be preferable to extending JobKeeper, as the money would go directly to those who need it.
“I have no worries about [government] debt. I have no worries about inflation,” said Dr Murray, when asked why he thought JobKeeper should end on March 28.
“It’s just the upwards distribution of wealth.”
Savings might not be spent
Equity Economics lead economist Angela Jackson and Blueprint Institute chief economist Steven Hamilton also agreed that the government should end JobKeeper in March.
But both challenged the government’s assumption that households and businesses would spend the $200 billion of savings.
“Confidence is key,” Ms Jackson said.
“At the moment there is every indication that Australian households are confident and this should help drive spending.
“But if households lose confidence or sense that the recovery is stalling, things could change quickly.”
Dr Hamilton, meanwhile, said improved economic conditions drive business investment rather than additional savings.
“It’s the economic outlook. It’s the degree of demand. It’s fundamental factors that drive those decisions,” he said, noting that companies could easily dish out the extra savings to shareholders or keep it in the bank.
He said the key to getting businesses to spend the extra cash was to provide more incentives.
For example, the federal government could increase the subsidy given to businesses via the JobMaker hiring credit, or expand the scheme to include older workers as well as the young.
They could also continue the instant asset write-off scheme.
“Improving incomes drives spending but what drives it more is directly increasing incentives,” Dr Hamilton said.
“And the more tightly you can tie the provision of support to the decision [to spend], the bigger bang for buck you’re gonna get.”
However, both economists said that extending JobKeeper beyond March would have perverse economic outcomes.
Dr Hamilton said the scheme had achieved its stated aim of helping companies keep on staff during the worst of the lockdowns, but extending it would keep people in jobs with no long-term future and prevent resources from flowing to more productive uses.
“It sort of gums up the job market,” he said.
“It prevents the reallocation of resources.”
Ms Jackson said there was a clear case for the continuation of support to sectors still affected by COVID-19 restrictions, such as tourism, but beyond specific industries “the case for continuation is not strong”.
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