Australia’s COVID-19 Budget

Australia’s 2020-21 Federal Budget has been defined by the COVID-19 pandemic.

Treasurer Josh Frydenberg announced billions of dollars in spending aimed at boosting the country’s economy, including tax cuts, business incentives, bonuses for employers and the new JobMaker employment subsidy for young people.

It also lays out massive spending on infrastructure as the government works on creating millions of jobs designed to pull Australia out of the recession created by the pandemic.

In his Budget speech, the Treasurer stated that the Depression and two world wars “did not bring Australia to its knees, and neither will COVID-19”.

But has the 2020 Budget delivered enough? We asked University of Melbourne experts to give us their assessment of how the budget will likely impact on some key areas.

DR BRENDAN CHURCHILL and PROFESSOR LYN CRAIG, Social And Political Sciences

Every year, the media helpfully dissect the Budget into winners and losers. Women and young people are rarely winners.

However, COVID-19 has hit women and young people hard and this was certainly acknowledged in Mr Frydenberg’s budget speech.

And it sounded like women would be in the winner’s circle this year.

The Treasurer stated that the second Women’s Economic Security Statement, to be released alongside the Budget, “will create more opportunities and choices for women, not just for the recovery but for generations ahead”.

But it’s hard to see from the Budget documents how this will occur.

In contrast to the announced 40,000 jobs as part of the Government’s $A14 billion infrastructure project investment, which will surely benefit men, there was no such allotted money for female-dominated industries.

The Women’s Economic and Security Statement, costing $A240 million, will do little to address workforce participation or the gender pay gap. The package includes money for STEM cadetships, greater support for women entrepreneurs and an expansion of the Women’s Leadership and Development Program.

It doesn’t address one of the most significant barriers to female workforce participation – childcare.

In Australia, childcare costs amount to around 27 per cent of average household income. This is amongst the highest in the Organisation for Economic Co-operation and Development (OECD).

It discourages women from working. The high cost, together with tax policies, often means that if mothers work more than three days a week, they are working the extra days for free.

Young people appear to have fared better than women in this year’s Budget.

The JobMaker Hiring Credit, which is estimated to create 450,000 jobs for young people, is critical to addressing rising youth unemployment during COVID-19.

JobMaker will be available for young people up to the age of 35 – a recognition that unemployment is now a problem for young people well into their late 20s and early 30s.

The JobTrainer program will provide wage subsidies for 100,000 new apprenticeships and traineeships for school leavers. However, this will largely benefit young men who make up 75 per cent of all apprentices and trainees.

Like their older counterparts, there are no incentives or specific policies to increase young female workforce participation.

Most of the support measures for young people are short-term in thinking and in scope.

JobMaker will only be available to businesses for up to a year, but the economic fallout of COVID-19 will be much harder and longer-lasting on young people.

Further, long-term vocational Education and Training (VET) and university funding needs to be addressed to ensure young Australians have access to high-quality, affordable education and training.

Professor Chris Edmond, FACULTY OF BUSINESS AND ECONOMICS

Overall this is a disappointing budget, but it could have been much worse.

It’s disappointing because it fails to think strategically about the economic situation confronting Australia right now.

Firstly, there can be no proper recovery unless we beat the pandemic. Because of that fundamental fact, one of the things the budget should be doing is facilitating massive investment in public health – particularly investment in testing and tracing capacity.

By simply assuming a widespread effective vaccine will be available next year and not otherwise thinking hard about how to beat the pandemic, the government is being very optimistic.

It’s not that the Budget isn’t spending in this area, but the amounts (around $A4 billion over the next year or so for vaccine distribution and other public health expenditures) are relatively small compared to say $A7 billion in business asset write offs over a similar period.

Secondly, while it’s good to see the government no longer shy about running large deficits in an effort to prevent further economic collapse, the instruments being used aren’t the most effective forms of stimulus.

For example, if you just want spending, then cash transfers to households (especially low-income households), would be more effective than tax incentives for businesses.

But more importantly the stimulus isn’t well targeted given the unusual nature of this recession.

In particular, the brunt of this recession is being felt disproportionately by women and in service sectors – especially tourism, hospitality and higher education.

It’s disappointing to see little in the way of targeted assistance to those sectors and households most hurt by the economic collapse.

Thirdly, while a deep recession is probably not the time you’d choose to make far-reaching reforms to boost the economy’s structural capacity and to deal with longer-run threats to the economy – like climate change – the political reality is that such reforms are hardly ever taken on in the budget immediately preceding an election.

This then was realistically the last chance for this government to do much on long-run issues.

While the government will argue that its middle-class ‘phase 2’ personal income tax cuts are both a needed stimulus and “reform”, the reality is that they aren’t much good as stimulus (more stimulus could be had by cash transfers) and they aren’t particularly high on the list of needed structural reforms either.

In a recent poll of Australian economists, bringing forward such tax cuts came quite far down the list of budget priorities.

The best that can be said about this Budget is that it could have been a lot worse. Unlike the United States for example, we have a government that does seem to recognise that substantial ongoing stimulus is required.

It’s just disappointing that the government has for the most part gone for scaled-up versions of the usual economic tricks rather than thinking hard about the specific economic actions required to combat this deep and unusual recession.

DR BARBARA BROADWAY, Melbourne Institute: Applied Economic & Social Research

In terms of money allocated, the government’s stimulus strategy primarily relies on business tax cuts and personal income tax cuts.

The effectiveness of personal income tax cuts is unclear, as it will disproportionally benefit higher income earners who are more likely to save.

Other, more promising big-ticket items are the JobMaker hiring scheme to support unemployed young people, and spending on infrastructure projects, which will mostly benefit the construction sector.

But there’s very little in this budget for women and families.

Around $A240 million over four years for women in male-dominated industries, some paid parental leave for women who don’t meet the eligibility criteria because they lost their job due to COVID-19.

From the perspective of a family economist, there is mostly a glaring hole, where two big-ticket items should have been.

First, there was an extremely strong case for additional funding for childcare services, targeted at low and medium-income families and disadvantaged children.

Dollars injected into this sector could have delivered a lot of ‘bang for buck’ in terms of stimulus.

The sector is very labour intensive, and additional services can generate a lot of additional employment – much more direct employment than the same money invested in construction does.

This would have been compounded by further positive, indirect effects.

The measure would have decreased excessive effective tax rates for low and medium-income parents. The families whose budget would have been improved, likely would have spent the additional income.

And finally, because they are low-paid, the sector’s workers are also likely to spend their additional work income again, so the stimulus dollars would have continued to go around.

We just experienced the enormous and direct value the sector provides to society – to children, parents and ultimately to employers – by painfully missing out on it during COVID-19 lockdowns.

It would have also been a chance to support people who were hit hard by the pandemic – young women, low income families and disadvantaged children.

It is most regrettable, and indeed hard to explain, that this opportunity wasn’t pursued.

Secondly, there was also a very strong case for a continued higher level of income support payments, including to the unemployed and single parents.

This could have brought on a disproportionally high stimulus effect – most of the additional income would have been allocated to very low-income households who are likely to spend it.

It could have also lifted many families out of poverty – many of whom are single-parent families – with all its well-known benefits especially to children.

Again, it is most regrettable that this is missing from the 2020-21 budget.

PROFESSOR JEFF BORLAND, FACULTY OF Business And Economics

Integral to the 2020-21 Budget is a major shift in policy direction – from job saver to job creation mode.

As the JobKeeper scheme is wound down over the next six months, the government’s contribution to economic recovery will instead come from policies aimed at increasing employment - the JobMaker Hiring Credit, tax cuts and business investment incentives.

Whether it will succeed in promoting job creation is how the 2020-21 budget must therefore primarily be judged.

This means asking several questions. How many jobs will be created? Who for? How certain can we be that the policies will increase employment? Will the timing of job creation match with when stimulus is needed?

The JobMaker Hiring Credit is a policy that can have a direct and immediate impact on employment – and it will have the extra benefit of biasing job creation towards the young, who are expected to be most adversely affected by the COVID-19 recession.

The amount of hiring credit should be sufficient incentive for employers to significantly increase the hiring of young workers – especially low-skill workers into part-time jobs.

More policies like JobMaker – with direct and immediate impacts on employment – would have made this budget better.

Undoubtedly, all the new policies in the budget are heading in the right direction of seeking to promote job creation. But how and when tax cuts will affect spending (and therefore employment) is uncertain.

The business investment incentives are timed to increase purchases of capital equipment over the next year – which could provide a boost to employment at the time needed.

But it is an expensive policy; and ultimately the take-up will depend on business confidence. And allowing business to write off losses against profits from previous years seems to duplicate the huge financial support already provided by the JobKeeper program – again implying an uncertain benefit for employment.

Should these policies not have the planned effects on employment, the government needs to be ready with extra support.

A policy that could be considered – which would bring an immediate and certain impact on employment – would be a short-term increase in public sector employment in Commonwealth departments and agencies.

Putting more money into the pockets of the households most likely to spend that income – like JobSeeker recipients – would also be likely to provide more immediate and certain stimulus.

Beyond that, expanded programs of government spending to support activities in sectors like arts and recreation could be considered.

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