This afternoon Finance Minister Grant Robertson threw another $700 million dollars at the wage subsidy scheme.
This is the extension of the scheme. It’s now easier for businesses to qualify, the earlier threshold of proving a 50% drop in revenue is now dropped 40%.
So, wage subsidies are now available to an extra 40,000 businesses that didn’t previously qualify and the cost has just gone from $3.2 billion to $3.9 billion.
If you think I’m about to complain, I’m not. This wage subsidy scheme has been a saving grace for our economy.
Take a look at how optimistic economists are starting to sound. Yesterday, as we mentioned on the show, ratings agency standard and poor’s predicted an average unemployment rate of only 6.2 percent this year.
I say “only”, because last week the reserve bank was predicting 18 per cent as its worst case scenario.
ANZ chief economist Sharon Zollner is now saying we might get away with just a regular horrible recession, presumably not a depression.
Westpac’s Dominick Stephens now reckons his earlier prediction of 9.5% unemployment won’t happen.
There’s been criticism of this scheme for propping up businesses that won’t survive, and that will undoubtedly be true in some cases, but a lot of the optimism we’re seeing today is because the wage subsidy scheme did its job. It helped businesses hibernate through the lockdown without cutting staff and leases or closing shop, then spring back to life when given the chance.
Crucially, the scheme gave businesses confidence. Confidence is fundamental. That’s the basic idea behind Keynesian economics. If the government gives businesses and investors and consumers confidence to spend normally, there’s a greater chance they will spend normally.
And you’d have to say, that is probably a big part of why we’ve bounced back as fast and as hard as we have economically. Because we all know that that, worst case scenario, the government’s willing to spend to get us out of a hole.
Word of caution to the government though: that spending still has to be wise and prudent.
There’s been a hell of a lot of rubbish spending recently.
$2.6 million for period poverty. Funding for post-covid pop up cycle lanes. $72.5 million for horse racing.
I worry that the government is seeing this crisis as a licence to fund its pet projects and that temptation should be avoided. Because the bill at the end of this is going to be huge. There will be a day when we voters will grumble about these bills. But one bill that few of should grumble about is that spending on wages.