Strong Fiscal Policy in Place for Australia to Ride Out COVID-19
From the Desk of the Chief Economist
COVID-19 is, without a doubt, a disruption and game-changer at the same time. There are many uncertainties at present, and quite a few “doom and gloom” stories on a collapsing economy and being on the brink of a recession. There is no denying that many Australian small businesses and inviduals are experiencing the brunt of it, from loss of income to having to close their businesses.
Fiscal policy, in the form of stimulus, is critical at this point, as it allows for the society to access immediate funds. Monetary policy can assist, however given that there are no legal requirements in Australia for banks to follow, plus the notion of interest capitalisation (which will cost those with loans more later on), it is a band-aid solution at best. The Australian Government has rapidly introduced a number of financial stimulus packages, targeting those who will be impacted the most.
COVID-19 is a world-wide phenomenon. The measures taken to contain the virus, as well as assistance to prop up the economy, differs from nation to nation. An analysis of the G20 countries, plus Iran, have revealed that at present Australia’s fiscal policy puts us in a strong place to ride out COVID-19.
As we can see in Table 1:
Against other developed countries, Australia’s stimulus package as a % of 2019 GDP (14.4%) is on the higher end, above United States and Canada, and significantly higher than our neighbours New Zealand.
From a Stimulus per Capita perspective Australia is in a strong position, whereby our per capita stimulus is only second to Germany. We are well ahead.
Factoring in the number of jobs lost and stimulus package as a % of 2019 GDP, Australia has a strong ability to provide financial assistance, and in some instances more favourably.
How does Australia compare to other G20 countries regarding the loss of unemployment/support for loss of income? (note: all monetary amounts are in the native country’s currency)
Currently Australians who have lost their employment or have lost partial income can access a number of government fiscal assistance, providing they can satisfy all of the requirements both on a personal and business level. These payments include (but not limited to): JobKeeper Payment ($1,500/fortnight), JobSeeker Payment ($550/fortnight), and Coronavirus Supplement ($550/fortnight). How does this compare with other countries?
United States of America - $1,200 government cash check for all residents. Individuals individuals who earn $75,000 in adjusted gross income or less would get direct payments of $1,200 each, with married couples earning up to $150,000 receiving $2,400 -- and an additional $500 per child. The payment would scale down by income, phasing out entirely at $99,000 for singles and $198,000 for couples without children.
United Kingdom - The government would give grants to cover 80% of a worker's salary of up to 2,500 pounds a month if businesses kept them on as staff.
Turkey – Relief for pensioners, with an increase in retirement salary to Turkey Lira 1,500
South Korea - During the period of business absence, 70% of the average wage must be compensated. The employees are subject to the provision of ‘allowances’ under the Labor Standards Act
South Africa – South African Rand 500 a month until July as part of COVID-19 measures
New Zealand - Wage subsidies & leave payments to employers, however, there is yet an announcement for extra unemployment benefits
France - Under the "partial unemployment" scheme, employees should apply for state benefits which provides them an allowance and that employers are banned from firing them.
Germany - Claim “Kurzarbeitergeld” scheme benefits or “short-work money" for temporarily laid-off workers
Indonesia - Social safety net programs to help about 70 million underprivileged citizens
China, India, Canada, Italy, Iran, Japan, Mexico - Claim regular employment insurance and/or unemployment benefits
Argentina - Pandemic Unemployment Support for laid-off and self-employed workers, and Job Seekers' Benefit for already unemployed individuals
Brazil, Iran, Saudi Arabia – Unable to find precise information at this time, although some news websites have indicated that government assistance is currently being planned
It is not surprising that developed countries within the G20 have a more comprehensive and structured financial stimulus policy compared to developing nations. South Korea seems to lead the developing nations in their response to the loss of employment due to COVID-19.
Australia presents a comparable financial stimulus package to other developed nations, and in some cases more advanced. It is extremely substantial compared to developing countries.
Key Message
The world as we know it currently does not exist – it is in a pause. COVID-19 and the hard-hitting economic impact it brings is not exclusive to Australia, and nor are business closures and job/income losses. It is a tough time for many across the globe. To date Australia has suffered a loss of 750,557 jobs – which is extremely significant, especially in such a short period of time. Other countries, as per known data, have also suffered job losses, some to the extremes of over 1 million people in Germany and over 38 million people in India.
At this crucial time, perspective is everything. On a micro / inward within Australia scale we may feel that the government’s fiscal policy, in the form of economic stimulus, is imperfect. In fact, ALL government policies are imperfect, as it is designed to be efficient (maximum result with minimum resources) and effective (maximum results with a minimum amount of time) at the same time. If we choose to look on a macro / worldwide comparison however, we can see that Australia’s fiscal policy is substantial and puts us in a strong position to ride out COVID-19.
