RBA warns hundreds of thousands could be out of work unless JobKeeper is extended
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Addressing the COVID-19 Senate Select Committee on Thursday, Reserve Bank of Australia (RBA) Governor Philip Lowe weighed in on how the economy was coping and the shape it was in to bounce back.
“The shape and timing of that recovery depends not only on when restrictions are lifted, but also on the confidence that Australians have about their own health and their finances,” Lowe said.
With jobs now mission-critical for both the government and the RBA, enormous support packages remain vital to the economy going through a “once in a century” event.
“The JobKeeper program has kept the connection between workers and firms and that is quite important not just in the downturn but the recovery phase,” Lowe said, noting that without it recuperation would be “much more difficult”.
However, questions remain as to how long JobKeeper will maintain those connections, keeping workers technically employed even if their place of business remains closed.
“It’s clearly going to be a critical point when that scheme comes to an end and also when the deferral for six months of mortgage repayments and other payments that the banks are offering comes to an end,” Lowe said.
Treasury is set to review JobKeeper next month, deciding whether to let it run the preordained six months to September, or to adjust its lifespan. Messaging around what the outcome could be has been mixed, with the Morrison government frequently emphasising both its importance as well as its impermanence.
Lowe praised the review as “very sensible” but emphasised the fact that the economy may need JobKeeper well beyond September.
“It will be important to review the parameters of that scheme. It may be in six months time we bounce back well and the economy is doing reasonably well and the schemes which were temporary in nature can be reformed without a problem. But if the economy has not recovered reasonably well by then, as part of that review we should be looking at perhaps the extension of that scheme,” he said.
“Right through to next year the economy is going to need support, from both monetary and fiscal policy… my main concern is that we don’t withdraw fiscal support too early.”
If for example, the scheme were to end in September, without a material improvement in the labour market or an improved outlook, many of those same workers JobKeeper had supported could be at risk of simply being retrenched.
“I’m hopeful that the fiscal support will be there for a long period of time…if the recovery is very drawn out then it’s going to be very important we keep the fiscal support going,” Lowe said, noting however that it was too early to tell what would transpire economically.
Given that, it seems like another review may be required in the second half of the year to gauge the government’s next steps.
Right now, the RBA appears a little brighter on where it thinks the economy is at. The perpetually upbeat Lowe acknowledged that while 600,000 job losses in April were a “shocking set of numbers”, they were “not as bad as we thought they were going to be”.
“We’ll see further declines in jobs but they won’t be as stark as we saw in April,” he said, noting the RBA had revised down its forecast of a 20 per cent decline in hours worked to closer to 15 per cent.
“Things have tracked no worse than the baseline [expectation] and perhaps fractionally better.”
“With the national health outcomes better than earlier feared, it is possible that the economic downturn will not be severe as earlier thought. Much depends on how quickly confidence can be restored,” he said.