Written by Hudson Adviser Phillip McGann
Economists are increasingly becoming concerned of what the short term outcome for the economy will be as we come to the end of the government assistance later this year - indeed within the next 100 days .
The Federal Government, State governments and many large corporations (including the banks) have been very proactive in providing the economy with a "crutch" to keep things going through the enforced lockdown of large swathes of the economy.
- The Federal Government has provided colossal support via its three stimulus packages since March covering apprenticeships, tax relief, social security increases via JobSeeker payment and the big one of supporting over 3 million workers with JobKeeper.
- State governments have come up with sector specific grants ,payroll tax waivers and deferments as well as outright loans.
- The banking sector has provided wholesale loan repayment holidays (not actually cancelling the interest owed just capitalizing it) until better times return.
These are all welcome and targeted and have had a large impact to stem the job losses and allow us to "only" record an unemployment rate in May of 7.1% when the real figure without Jobkeeper may well have been 14% or even more.
However what happens when these programs run out?
What happens when they all run out together at the end of September?
- The JobKeeper program has an end date of the 30th September.
- The JobSeeker increase in payments (effectively doubling the payment ) is due to expire about he same time.
- Likewise the banks have set there repayment holidays to run out at the end of September.
All of these by themselves are major changes but if they all happen at once (with no other changes brought in) will we potentially see a spike in unemployment as the lockdowns are still in force.
Many industries that rely solely on close human interaction (hospitality, tourism, sport, education etc) may well be devastated as business owners are no longer able to keep staff on board without the Jobseeker lifeline.
This leads to potential business closures and the myriad after effects of loan defaults and forced property sales etc.
Is this outcome avoidable? Of course it is.
The Federal (and to a lesser extent the State Governments through border lockdowns etc) has created this environment by closing whole industries down.
For legitimate health reasons we are in the midst of a government induced recession.
And it is up to governments to step up and step in and compensate the population as best it can in a collective sense to enable the economy to get back on its feet. This is a combination of unwinding the lock downs as well as maintaining fiscal assistance.
If this necessitates massive debt - as it has so far and as it will going forward - then so be it.
As Australians we all collectively own that debt and to use it to keep the economy afloat whilst we get through the pandemic is simply what we will have to bare.
The debt will accrue and we will have to service it and eventually pay it off (or write it off) via future income from taxes and inflation.
This is what happened in previous episodes of war and this current pandemic is akin to a "war on a virus" with all the restrictions previous war conditions entailed.
So yes, the government can and likely will extend the assistance past September to massage the economy's recovery from the pandemic. The alternative is a more severe and longer lasting recession or even depression and no government wants that on its watch.
Likewise the last thing banks want to do is foreclose on loans if any alternative is available. If the banks went "in hard" demanding repayment of debts come October they would be shooting themselves in the foot as they would be trying to sell property in a depressed market created by multiple sales of foreclosed properties from themselves and other institutions.
Banks are in the market place to lend money not foreclose on collateral unless absolutely necessary. So expect further assistance for the banks going forward particularly form home owners.