Unemployment is expected to rise to the highest level in 26 years as JobKeeper is wound back and the dole boost is diluted during a recession.
Reserve Bank of Australia governor Philip Lowe made the prediction less than two hours after the government announced the wage subsidies program would continue for another six months but be reduced.
‘Adding to this complicated picture is the fact that the unemployment rate is likely to increase further, even with the recovery underway,’ Dr Lowe said.
Unemployment is expected to rise as JobKeeper is wound back and the dole boost is diluted. Reserve Bank of Australia governor Philip Lowe made the prediction less than two hours after the government announced the wage subsidies program would continue for another six months but be reduced.
From September 28, $1,500 a fortnight JobKeeper payments are being reduced to $1,200.
The number of workers receiving wage subsidies will more than halve from 3.5million to 1.4million in the final three months of 2020.
That falls to one million at the start of January.
The $70billion program was due to end on September 27 but will instead be instead to extended March 28, with taxpayers stumping up another $16.6billion.
JobSeeker unemployment benefits are also being increased by $250 a fortnight to $815.70 on top of the old Newstart rate for singles of $565.70, at a cost of $3.8billion.
Australia’s unemployment rate rose to 7.4 per cent in June, the highest level since November 1998. The Reserve Bank is expecting the jobless rate to hit nine per cent by December, which would be the highest level since November 1994
More than 1.6million Australians, including the unemployed and those on sickness and bereavement benefits, are having their dole payments temporarily doubled with a $550 coronavirus supplement until September 24.
Unemployment during June amid COVID-19
Australia’s unemployment rate climbed from a 19-year high of 7.1 per cent in May to 7.4 per cent in June – the highest since November 1998
Number without work climbed from 923,000 to a record-high 992,300
Close to a million people unemployed for the first time ever – surpassing 960,200 record set in December 1992
Unemployment increased even though 210,800 more people were employed as COVID-19 shutdowns eased
That was because the participation rate increased from 62.7 per cent to 64 per cent as more people looked for work
Source: Australian Bureau of Statistics labour force data for June
Australia’s unemployment rate rose to 7.4 per cent in June, the highest level since November 1998.
The Reserve Bank is expecting the jobless rate to hit nine per cent by December, which would be the highest level since November 1994.
Economists universally agree Australia is already in recession for the first time in 29 years as a result of the COVID-19 shutdowns.
Dr Lowe said unemployment was likely to rise in 2020 as an economic recovery encouraged more people to seek work.
‘This is because many of the people who lost their jobs over recent times have been classified as not in the labour force and so are not counted as unemployed,’ he said.
‘As the labour market continues to improve, we expect many of these people will start looking for jobs, and thus be classified as rejoining the labour force.
‘This will push up the measured unemployment rate at the same time that the share of the working-age population with a job is also rising.’
The Westpac bank is forecasting a deficit of $240billion for the 2020-21 financial year which would comprise about 12 per cent of gross domestic product.
As a proportion of the economy, that is almost triple the 4.2 per cent deficit of 2009-10 when Labor was in power during the Global Financial Crisis.
The government has already spent $174.1billion on welfare stimulus programs during the COVID-19 pandemic with the Reserve Bank spending another $90billion on giving banks financing for cheap small business loans.
Nonetheless, Dr Lowe pointed out Australia’s gross government debt, before assets were taken away, was much lower than other rich-world economies
With government spending levels at the most elevated since World War II, Dr Lowe cautioned against the idea of printing money and putting funds into every bank account, even with inflation and interest rates at low levels.
‘There is no free lunch. The tab always has to be paid and it is paid out of taxes and government revenues in one form or another,’ he said.
Nonetheless, Dr Lowe pointed out Australia’s gross government debt in 2019, before the coronavirus pandemic, was much lower than other rich-world economies.
‘Debt across all levels of government in Australia, relative to the size of our economy, is much lower than in many other countries and it is likely to remain so,’ he said.
Treasurer Josh Frydenberg is releasing an economic statement on Thursday.