This was published 3 years ago
Editorial
Fiscal stimulus needed to stop unemployment rising still higher
The sharp rise in unemployment confirms that the economic shock caused by the coronavirus epidemic will be the most severe in decades and demands a serious rethink of the government’s economic strategy.
The unemployment rate has jumped from 5.1 per cent to 7.1 per cent in just three months which represents 205,000 more people on the dole. Prime Minister Scott Morrison said at a press conference that the data was “heartbreaking”.
Bad as the headline unemployment rate is, the real situation is actually worse. The figure does not include hundreds of thousands of people who have given up looking for work entirely or who have been stood down on temporary JobKeeper payments and might lose their jobs when the wage subsidy expires.
Meanwhile, thousands of part-timers are now down to only a few hours a week and desperately want more shifts. Total hours worked have fallen by 10.2 per cent since March.
Mr Morrison said he saw a “ray of light” in the figures but if so it is the faintest flicker. Perhaps he means that the Australian Bureau of Statistics collected the data prior to May 30 before many of the lockdown measures had been relaxed. He may be right that some jobs will return as lockdown eases. But it seems likely more jobs will not.
International borders are unlikely to reopen this year which will postpone a recovery in tourism, hospitality and tertiary education, sectors which are huge employers, especially of women.
The sharp fall in new immigrants – which has stalled population growth – will also hold back the economy for some time. In fact there was a net outflow of 30,280 non-tourists in the period from March to May compared with a net inflow of 23,000 in the same period in 2019.
Without demand from new migrants, a glut of empty apartments will make it uneconomic for builders to embark on new projects, despite the government’s HomeBuilder package.
Mr Morrison once hoped the economy would snap back after the pandemic. He now says it will take five years for the economy to get completely back on track.
This smacks of fatalism. This is a recession we probably could not have avoided but its length and severity will depend on economic policy.
The government should take the advice of the Reserve Bank of Australia and deploy more fiscal stimulus to speed up recovery.
Mr Morrison is right to be wary about going too deep into debt and wasteful spending. He is right to warn that he cannot continue to support zombie businesses indefinitely and that badly designed wage subsidies can give some workers a reason not to work. He is also right to look for long-term ways of boosting productivity.
But until the private sector revives and confidence returns, government spending is the only way to create growth and jobs.
Urgent action is required. The economy could fall into a much deeper hole in October after the expiry of the first round of stimulus measures such as the JobKeeper and JobSeeker payments, the one-off withdrawals from super accounts and the holidays on mortgage repayments.
The government should now focus on how further stimulus should be delivered, whether it be by adjusting and extending JobSeeker and JobKeeper or through more investment in useful job-creating projects such as social housing and renewable energy or some other way.
The jobs figures should convince the government that it has no choice but to spend more.
Note from the Editor
The Herald editor Lisa Davies writes a weekly newsletter exclusively for subscribers. To have it delivered to your inbox, please sign up here.