The Australian economy will need to stand on its own two feet at the end of this month, following the removal of the JobKeeper wage subsidy on March 28th. Moratoriums on tenant evictions are also set to expire in both Victoria and New South Wales at the end of the month. Currently, those on JobKeeper are eligible for either the tier one $1,000 payment, or the tier two $650 payment.
‘The latest data indicates that 1.54 million individuals were being supported by JobKeeper at the end of December, and this is expected to have fallen by a further 600,000 in January,’ said IBISWorld Senior Industry Analyst, Matt Barry.
Cautious consumers
The Australian economy has been more resilient than originally anticipated over the past year. The national unemployment rate is expected to average at 7.7% in 2020-21, and fall to 6.7% in 2021-22. However, consumers continue to be cautious despite the strengthening of the Australian economy. Recent surveys have indicated that close to 40% of individuals stayed at home in January to avoid the risk of exposure to COVID-19, and 73.4% of individuals took steps to keep physical distance from others.
‘While COVID-19 has been contained in Australia, the economy is still in a weakened state. According to the ABS, close to 8.8% of survey respondents drew on accumulated savings to support basic living expenses in January, and 3.5% sold household items or jewellery to make ends meet,’ said Mr Barry.
Fragile sectors
National employment has strengthened in recent months, but has fallen in the post-Christmas period. At the end of January, Australia had 1.9% fewer payroll jobs relative to March 2020, and total wages fell 3.4% over the same period.
‘The economy has strengthened, but does remain fragile. The removal of JobKeeper is likely be particularly harmful for industries that are highly reliant on international travel, such as the Travel Agency and Tour Arrangement Services industry,’ explained Mr Barry.
The hospitality sector has been weakened by a lack of international tourism spending and consumer hesitancy to dine out. However, the sector is gradually recovering, with revenue across the Restaurants industry expected to rise by 5.1% in 2020-21. The Cafes and Coffee Shops industry is also anticipated to grow by 6.3% in the current year.
Although JobKeeper is set to be removed, ongoing fiscal support will be vital to preserve businesses in the Tourism sector. The Federal Government has flagged that more targeted support will be made available to these areas. However, the level of support is expected to be lower relative to the JobKeeper scheme.
‘Until international travel normalises, which is looking unlikely until 2022, there is likely to be an elevated rate of business failures and job losses across tourism-centric industries, such as Scenic and Sightseeing Transport, International Airlines, Online Travel Bookings and more,’ said Mr Barry.
The need to end JobKeeper
Over the past year, the JobKeeper payment scheme has helped to minimize the impacts of the COVID-19 pandemic on Australian employment. However, this assistance has come at a great cost. According to the December MYEFO update, the total cost of JobKeeper is expected to reach $90.1 billion over the two years through 2020-21.
‘While JobKeeper has been a lifeline for many businesses, it is necessary to remove it this month given its high cost. The federal budget deficit is expected to reach $197.7 billion this year, equivalent to 9.9% of GDP,’ warned Mr Barry.
The broad scale of JobKeeper has also exposed it to unintended secondary effects, including the propping up of ‘zombie companies’ that would have otherwise failed if the COVID-19 pandemic, and JobKeeper, had never emerged.
‘The number of business failures in the first half of 2020-21 was down by 54.8% relative to the prior year, showing how many businesses have been propped up by the government’s COVID-19 support policies,’ said Mr Barry.
IBISWorld reports used to develop this release:
- Travel Agency and Tour Arrangement Services in Australia
- Restaurants in Australia
- Cafes and Coffee Shops in Australia
- Tourism in Australia
- Scenic and Sightseeing Transport in Australia
- International Airlines in Australia,
- Online Travel Bookings in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com
