NSW faces a shock when COVID-19 disaster payments are cut

 

More than one million NSW workers will, within weeks, lose the federal disaster payments that have been sustaining them through the three months of lockdown and for many, it will be a trying time.

Treasurer Josh Frydenberg has revealed this week that the disaster payments of up to $750 a week for individuals will wind down once vaccination rates pass 70
percent of the adult population.

It is expected that the state and federal governments will also announce a plan for winding back JobSaver payments for business of up to $100,000 a week, which they jointly fund.

The payments have played a fundamental role in sustaining the NSW economy through the Delta lockdown and saving many individuals from hardship. Without them, NSW could never have bent the curve as quickly as it has.

But they come at an unsustainable cost to the budget and they have to go. The federal government says it has spent $16 billion on emergency financial support to individuals and to businesses in the current outbreak. Of that, $6.3 billion has gone on the emergency payments to individuals.

The case for winding back the payments as lockdowns end and the economy returns to normal is clear but the delicate question is about the pace of reduction.

If payments are wound back too quickly before the economy recovers, many people will be moved on to the inadequate $320 a week JobSeeker payment.

The federal government is allowing only a few weeks for this transition, with full payments lasting only one week after vaccination reaches 80 percent. At the current rate of vaccination in NSW, it is likely that they will disappear by the end of October. Rightly or wrongly, last year’s COVID-19 stimulus lasted for months after lockdowns ended.

The Australian Council of Social Service is concerned that withdrawing disaster payments prematurely could “add to the high levels of financial distress already evident”.

Mr Frydenberg has rejected these concerns, saying the economy is “well placed to bounce back” and people will quickly find work. He is expecting the economy to repeat the rapid recovery after last year’s much shorter lockdown.

The Herald hopes he’s right but there are reasons for doubting his optimism. First, under the NSW government road map released this week some restrictions will stay in place long after 80 per cent of the population is vaccinated. Restaurants will face capacity limits for some weeks yet, for example, limiting their reopening capability. Moreover, some regions could be locked down again if there is a surge.
 
Another reason to believe the recovery might drag is that, unlike earlier this year when the number of cases was close to zero, this time COVID-19 will be endemic. Reserve Bank governor Philip Lowe said last week he is worried that even some vaccinated people might hesitate to start going out and spending. “Much will depend upon our attitude to risk and how our society deals with the ongoing rate of infection,” Dr Lowe said.

The design of the disaster payments, which are now being removed, could also make it harder for workers to return to their old jobs.

Unlike JobKeeper, the disaster payments are made directly by the federal government rather than through the employer. The new system has reduced the rorting which marred JobKeeper but it severed the link between employers and employees, potentially making it harder for recipients to be rehired.

The federal government faces some hard choices in solving these problems but it must ensure that the economy receives the support it needs to drive it out of the lockdowns and into recovery.

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