The nation’s top Treasury bureaucrat has declared Australia’s recovery from the coronavirus recession is “locked-in”, predicting consumers will help power the economy over the next two years.
Treasury secretary Steven Kennedy said a combination of the way Australia had controlled the pandemic and the amount of federal and state government money pumped into the economy meant the country was well on its way out of recession.
Treasury secretary Steven Kennedy says it appears Australia’s economic recovery was “locked-in”.Credit:Alex Ellinghausen
“We’re quietly confident now that the recovery is locked-in,” he told the Senate’s COVID-19 committee on Thursday.
The economy contracted by 7 per cent in the June quarter, its single largest contraction since the 1930s, before growing by 3.3 per cent in the September quarter. Economists believe the December-quarter result, to be released next month, will show continuing strong growth.
Dr Kennedy conceded there might be softness for some time in sectors such as aviation, arts and recreation, and education.
The gradual withdrawal of government support, such as the end next month of the JobKeeper wage subsidy and the $150-a-fortnight coronavirus supplement for people on welfare payments such as JobSeeker, might also have an impact.
Dr Kennedy said some people would lose their jobs and probably move on to JobSeeker once JobKeeper ended, noting there had been a drop-off in the number of people on the latter when the subsidy was reduced in October.
“I’d expect it will mean there is some people whose employment won’t be present, job losses that would come of that. As there was in the move from JobKeeper II to JobKeeper I,” he said.
The Australian Taxation Office said there were about 500,000 businesses on JobKeeper, supporting 1.6 million jobs.
Treasury said it was not sure how many of those on JobKeeper would shift to JobSeeker once the subsidy scheme ended.
Dr Kennedy said the strong jobs growth of recent months was likely to “pause” between March and June as the subsidy ended.
In December, Treasury forecast unemployment to peak at 7.5 per cent. Dr Kennedy said it was now unlikely to be that high.
He said household consumption had recovered “very strongly” and would probably continue due to the support measures put in place by governments through the pandemic.
“We think this is a consumption-led recovery in the sense of consumption will recover first, and household balance sheets in particular are well placed,” he said. “People have actually been retiring their debt during this period.”
‘We think this is a consumption-led recovery in the sense of consumption will recover first.’
Dr Kennedy said the support from the federal and state governments, coupled with the Reserve Bank’s actions, had delivered an unparalleled level of assistance to the broader economy.
The government support was likely to have an impact for two to three years.
Prime Minister Scott Morrison, speaking in Melbourne, said programs such as JobKeeper were always designed to be wound up.
“The challenge now is about the investment that comes from the private sector. There is a point of hand-off where the private sector stands up,” he said.
Last week, RBA governor Philip Lowe publicly backed an increase in the base rate of the $40-a-day JobSeeker program, saying it was a fairness issue.
Dr Kennedy would not be drawn on the issue, saying he had given the government his private view.
Mr Morrison said the government was still considering its position on the payment, which is being claimed by about 1.3 million Australians.
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