Decision to scrap Covid subsidy fills struggling Australians with dread

Ebanie Fletcher has relied on Australia’s Covid-19 wage subsidy to support her family for almost a year. But the flight attendant is worried about her future following Canberra’s decision to scrap the A$80bn ($62bn) scheme next month as the economy recovers faster than expected.

The Conservative government said the A$1,000 ($775) fortnightly JobKeeper payments were no longer needed because of its adept handling of the pandemic, which has enabled the economy to bounce back from its first recession in almost 30 years.

But trade unions and businesses are urging Canberra to extend JobKeeper, which has supported 3.5m people through lockdowns and border closures that have wiped out companies and cost jobs.

“Covid is still a massive issue for aviation with borders still closed,” said Fletcher, whose husband also works as a flight attendant at Virgin Australia.

“JobKeeper was a lifeline for us. We may now be forced into redundancy.”

Economists said the scrapping of JobKeeper made the nation of 25m people a test case for understanding how the withdrawal of emergency fiscal supports would effect economic recovery. A similar wage subsidy scheme in the UK is due to be withdrawn in April, although its pandemic-ravaged economy is in worse shape than that of Australia.

“The ability to roll back the temporary supports and not derail the economy is definitely linked to the health outcomes. It’s become very clear that if the disease is not under control, it’s impossible for the economy to normalise,” said Sarah Hunter, economist at Oxford Economics.

Australia’s economy grew 3.3 per cent in the three months to September last year and unemployment fell to 6.6 per cent last month, well below the 10 per cent peak forecast at the height of the pandemic in April.

However, the rollback of supports remains risky, particularly given a Covid-19 outbreak in Melbourne that plunged the city into a five-day lockdown this month. Critics warn some of the remaining 500,000 businesses on the scheme could fold when public subsidies for staff wages are withdrawn.

Hunter said hospitality, tourism and entertainment were the most exposed industries, even as some sectors enjoyed a post-pandemic boom.

Virgin Australia, which emerged from administration in November following an A$3.5bn investment by US private equity group Bain, has warned axing JobKeeper could cost thousands of jobs. The airline has already shed a third of its 9,000 staff.

“We will have to make tough decisions on how many people we can afford to keep on the books when we don’t have any guarantee of the borders being open,” Jayne Hrdlicka, Virgin Australia chief executive, warned this month. 

The Australian Council of Trade Unions warned a premature end of the wage subsidy scheme would damage workers, businesses and the economy. It has also criticised Canberra’s decision to scrap a A$145 Covid-19 supplement paid fortnightly to people claiming unemployment benefits.

“We are living in a crucial recovery period that requires people to spend, and to do that people need the certainty that these supports create. To not extend JobKeeper is not only cruel, its bad economics,” said Michele O’Neil, ACTU president.

The government rejects this criticism. It claimed Australia has outperformed all advanced nations on job creation with 90 per cent of the 1.3m people who lost their jobs or were stood down owing to Covid-19 back at work. The withdrawal of a similar wage subsidy scheme in New Zealand in September did not lead to an increase in unemployment, according to Canberra.

Josh Frydenberg, Australia’s treasurer, said the government planned to cut taxes, provide business incentives and invest in skills and training to boost employment. Targeted support for certain vulnerable industries was also under consideration, he added.

Economists said the phasing out of emergency fiscal supports should be cushioned by the Reserve Bank of Australia’s decision to maintain highly expansionary monetary policy settings — despite the recovery under way.

Philip Lowe, RBA governor, signalled the expansion of the bank’s quantitative easing programme this month and suggested that interest rates were unlikely to rise from a record low of 0.1 per cent until 2024.

“The RBA wants to get inflation back to its target range of 2 to 3 per cent having undershot it for five years in a row. It also wants to prevent further upward pressure on the Australian dollar,” said Saul Eslake, an economist and fellow at University of Tasmania.

He forecasts the hit delivered by the end of JobKeeper should be smaller than initially feared when first announced late last year, as many companies had weaned themselves off the subsidy and fortnightly payments had already been cut from A$1,500 to A$1,000.

But for companies and employees in vulnerable sectors, the loss of wage subsidies will inevitably mean job losses, which could threaten the viability of businesses.

“I’ve worked in the aviation industry for 17 years,” said Fletcher, “and I’m devastated at the thought of losing a career that I love.”

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