Posted: 16 Feb. 2021 5 min. read

Will they, won’t they? The future of government COVID support

At the onset of the pandemic, the federal government pulled out all the stops to support households and businesses in the face of massive disruption.

More than $154 billion has been paid out to date, including $35.9 billion in early super withdrawals, $18.7 billion from the Coronavirus supplement and $81 billion in JobKeeper payments.

But that support comes to a close in six weeks’ time – leaving many nervous about what could happen when it does. The latest lockdown in Melbourne – and the knowledge that in many parts of the country we are never more than one quarantine breach away from imposing more restrictions – further amplifies those fears.

The biggest concern remains around the transition off JobKeeper. At its peak, the program paid the wages of more than 3.5 million Australians, and today, there are still more than 1.5 million workers receiving the subsidy. Treasury expects that number to tail off to 1.3 million when the program wraps up at the end of March.

The hope and expectation is that many of those jobs are already again viable under current conditions, and so they will remain in place as the subsidy comes off. But the truth is, we just don’t know.

As it stands, any people who lose their jobs when JobKeeper ends face a monthly drop in income of over $930 a month, as their $1000/fortnight JobKeeper payments stop, and the JobSeeker rate drops back to $565.70/fortnight. And the 1.9 million Australians expected to still be receiving the Coronavirus supplement will face a $300 hit to their incomes each month when it’s removed.

All up, there’ll be close to $5 billion less in government support flowing through the economy each month (a touch over 3% of monthly GDP).

Chart 1: Monthly government support payments

Source: DSS, Treasury, APRA

The next few days will be key in understanding the challenge for Victoria. But it’s not just Victoria at risk from a sudden drop in support. Many industries are still facing significant impediments to their operations, so it’s likely many businesses receiving JobKeeper still very much need it to support employment. In particular, the lack of international tourists has smashed the sectors that rely on them most. Nearly a third of all workers in arts and recreation are still receiving JobKeeper, while the same is true for one in five accommodation and food service workers. That’s compared to around 12% of the overall workforce.

Chart 2: Share of workers receiving JobKeeper, December 2020

Source: ATO, ABS Labour force

Any ongoing negative impacts from winding up JobKeeper could also have quite disparate regional impacts, with North Queensland in particular feeling the pain of a long spell without international tourists (and heavy restrictions on borders preventing domestic tourists from making up the numbers).

It’s worth noting that the economy has so far weathered the reduction in support payments remarkably well. Between July and October, there was a drop of more than $24 billion in monthly support payments as the Coronavirus supplement was cut to $250 and a reduced two-tiered JobKeeper rate introduced.

The difference now? Those households taking a hit from the reduced payments in July were still buoyed by above-normal levels of support, preventing many from needing to dig into savings. Come March, those households will be back to the ordinary rates of welfare payments. And for many, that will mean using up savings, or otherwise deep cuts in their spending on goods and services.

Clarity on additional support programs could certainly help to offset some of that hit – be it tailored support from the federal government or additional state government programs.

More about our authors

David Rumbens

David Rumbens

Partner, Deloitte Access Economics

David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis.  David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.

Harry Murphy Cruise

Harry Murphy Cruise

Senior Economist

Harry joined Deloitte Access Economics in January 2017 after completing a Bachelors of Arts and Commerce, with honours in Econometrics and Business Statistics from Monash University. Harry’s area of focus is data analytics and econometric modelling, having conducted a range of research surrounding mental health, prescription drug use, labour markets and ageing populations.