The current climate surrounding the coronavirus pandemic has indisputably posed a significant global economic risk. As a direct response, governments across the globe have devised a myriad of initiatives in an attempt to mitigate the impacts of the pandemic on currently struggling economies.
In order to alleviate the financial and economic pain engendered by the coronavirus pandemic, the Australian government employed the Job-Keeper wage subsidy scheme for eligible businesses. The stimulus package necessitated payment of $1,500 per fortnight to employees who have experienced a substantial decline in their working hours or have been laid off from their position, with the requirement that their employment has been for a term greater than 12 months. In some cases, the wage-subsidy represented an amount exceeding the individual’s earnings prior to the coronavirus crisis. In conjunction with this, the Australian government has additionally doubled unemployment benefits, with temporary $550 coronavirus supplements being provided to job seekers, and more than 7 million income support recipients, including pensioners, carers, and veterans, reaping the benefits of two $750 cash payments.
The issue of government securities has currently been a large financial measure employed to support the existence of economic stimulus packages, with both domestic and global investors responding well to the sales of government bonds. The demand for Australian government bonds has undoubtedly spiked in recent times, with $65.6 billion worth of bonds being sold over the previous two months. Included within this is the $19 billion sales of 1 percent bonds by the Australian Office of Financial Management in May, which saw the government reach record-breaking new highs for single bond issues. This came subsequent to the previous $13 billion bond issue in the previous month, which was also identified to be an all-time high for the bond market, captured below. Furthermore, the Reserve Bank of Australia is acknowledged to have purchased $51.348 billion (by face value) worth of government securities since March this year, now holding 7% of the Australian government bond market. These actions from the RBA have been made in an attempt to lower borrowing costs in the economy and maintain the three-year government bond yield targets of 0.25%.
Cause for concern, however, arises from the recently discovered overestimated costs for the Job Keeper subsidy. Re-evaluated to represent an amount of $70 billion, the estimated cost now associated with the job-keeper payment yields a $60 billion discrepancy when compared to the initial valuation of $130 billion. This comes as a result of only 3.5 million employees claiming the benefits, differing significantly from the predicted 6 million. As a consequence of overestimating the cost of the program, the federal government could have, in fact, overpaid, in the bond market. Speculation is arising that an additional $180 million has been spent in higher interest as a result, with further analysis revealing that, prior to the announcement of the program’s overestimated costs, the government was overpaying debt by three basis points. Conversations still remain in place for how this extra $60 billion will be spent, and whether it will be used to extend the program to subsidise those on a visa and/or casual workers excluded under the eligibility criteria.
It is without a doubt that the economic rescue packages, totaling $194 billion, will leave the Australian Government, and, more notably, taxpayers to foot the bill for several years to follow. Yet, how does Australia’s fiscal boost rank amongst other countries worldwide, and just how much has been done by governments globally to mitigate the economic impact of the coronavirus pandemic?
When compared on a global scale, at first glance the large economic bill accumulated through Australia’s economic rescue packages appears minuscule. Representing amounts of $8.3 billion, $483 billion, $192 billion and, more notably, $2.3 trillion, it is without a doubt the rescue packages pledged by the United States classes as the most expensive response globally. However, when looked at in terms of the percent share of GDP, America’s response is relatively similar to Australia’s, with the economic packages in both countries amounting to 11% and 9.9% of GDP respectively. In fact, it is Japan whose economic response to the pandemic has been the most aggressive, with the country’s current stimulus spending representing a share of 21.1% in GDP. In recent days, Japan has additionally approved a second stimulus package of 117 trillion yen, ultimately seeing for the country’s total package during the pandemic to represent 40% of GDP. Additionally, when looking at stimulus packages on an international level, it may be engrossing to see that it was the United Kingdom who set a precedent for Australia to follow when it came to wage subsidies. Indeed, the announcement for the Job Keeper wage subsidy came 2 weeks subsequent to the decision for the UK to subsidise 80% of workers’ wages, despite PM Scott Morrison initially rejecting the proposal for a UK-style wage subsidy scheme in Australia.
Moreover, whilst the stimulus programs implemented by governments worldwide have been made in an attempt to save their economies from the pressure of the pandemic, some countries have been left struggling to foot the bill of crisis and spiraling into further debt traps. Despite being notorious for its high levels and negative cycle of debt, Argentina has gone into technical default as the pandemic made it increasingly harder for the country to repay its $500 million interest payment on foreign debt. Furthermore, in response to the significant financial stress faced during this time, the IMF, World Bank, and UN have attempted to alleviate the debt pressure on low-income countries through the introduction of several initiatives. Amongst this is the G20’s agreement to suspend bilateral government re-payments in 76 necessitous countries, with amounts totaling up to $20 billion. Additionally, despite France being a member of the G20 group, they too are contemplating desperate measures to repay debt accumulated during this time.
This comes as the founder and CEO of tech company, Fabernovel, has suggested that France sell the Mona Lisa in order to make up for its financial losses, with a monetary figure of at least €50 billion assigned to the famous painting. Thus, it is clear that Australia is not the only country left with a large bill subsequent to the pandemic.
Throughout the article, the economic pressure faced as a result of the coronavirus pandemic has been explored. It has become evident that the stimulus package offered by Australia almost mirrors that implemented in America in relative terms. Further detail has additionally been presented as to how the Australian government has currently been able to support the existence of stimulus packages in Australia at the current point in time, and insight has been provided into the initiatives proposed to assist low-income countries during this uncertain time.
References:
https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19
https://www.aa.com.tr/en/asia-pacific/japan-approves-second-stimulus-package-amid-covid-19/1854982
https://www.abc.net.au/news/2020-03-30/coronavirus-government-to-announce-wage-subsidy/12101648
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
