Date Archives April 2021

COVID-19: Our most vulnerable workers need more help

The Morrison Government’s stimulus package is a welcome set of measures to keep businesses open and put money in the hands of people most likely to spend it. But the package doesn’t do much to help workers who will lose some or all of their incomes in coming weeks and months. The Government must be ready and willing to step in with further assistance for this group when needed.

A lot of people are going to be unable to work over the coming weeks. The steep drop in the number of tourists and international students arriving in Australia has already meant that some people have lost shifts, or seen their work dry up entirely. The ban on non-essential public gatherings will also dent employment.

Many of us should be able to weather the coming economic storm. Australians who are fortunate enough to be able to work from home, or who have paid leave they can draw on when they need it, may get through the economic turbulence relatively unscathed, at least provided our employers stay in business.

But a large number of Australian workers are vulnerable if they can’t work, especially for an extended period. Over a third – around 37 per cent – of Australian workers do not have paid leave entitlements. There are about 12.5 million Australian workers. About 2.4 million of them are casual employees – with no paid sick or annual leave, and no entitlement to ongoing work – and a further 2.2 million are self-employed.

Low-paid workers are much less likely to have paid sick leave than other workers. Among people who earn less than $800 a week, only 46 per cent have paid sick leave. Another 4 per cent are self-employed, and the remaining half are casual workers without paid leave entitlements.

People on this level of income are unlikely to have a lot of savings set aside to see them through periods when their shifts dry up, or they lose their jobs entirely.

Young people are disproportionately likely to be in casual work and not have paid leave. But casual work is not just for young people who are putting themselves through university. More than a quarter of people in their 30s, 40s, and 50s do not have paid sick leave – either because they’re casual workers or they’re self-employed. About 1.5 million parents – which is about a third of all working parents – have no paid leave.

Most workers without paid sick leave are in industries that are especially vulnerable to shutdown. More than 400,000 casual and self-employed people work in cafes and restaurants – an industry that will be hit hard  over the coming weeks. Not many of the 20 industries with the largest number of workers without paid leave entitlements are likely to be able to continue as normal over a period of widespread self-isolation.

Australia has a lot of people who are not entitled to paid sick leave. Casual workers, by definition, have no job security – no guarantee of ongoing employment, nor of a certain number of shifts. As businesses close and people avoid public places, many casual workers will lose their jobs, or at least some of their income.

The Government’s stimulus package, quite appropriately, provides support to business to keep the lights on and keep the pay cheques going out to workers over the period ahead. But when people do inevitably lose their jobs, the safety net might not be strong enough to catch them.

The Government will give one-off $750 payments to concession-card holders and people who were on a benefit such as the Age Pension, family payments, or Newstart, as at last Thursday. But if you lose your job tomorrow, you’re out of luck.

More worrying still, people might have to wait a while to get even the regular, meagre level of public assistance. In 2018-19, the typical applicant for Sickness Allowance had to wait 35 days for their claim to be processed – and half of applicants waited longer. The median processing time for Newstart was 15 days. These times could well blow out further if the system is overwhelmed by new applications, and if growing numbers of Centrelink and Services Australia staff have to self-isolate.

It would be very bad for Australia over the coming weeks and months if workers who should isolate themselves decide to keep showing up to work because they are not entitled to paid leave.

Any further stimulus – and more may well be needed – should put this group front and centre.

This post has been updated to correct a minor error. Unfortunately some numbers in the text were from an older version of the Characteristics of Employment survey; the correction does not affect any charts.

Co Authors :

We’re not doing nearly enough on COVID-19 and time is running out

The Australian Government is moving in the right direction. The Prime Minister announced this morning a ban on non-essential indoor gatherings of 100 people or more, in addition to the ban on outdoor gatherings of 500 or more. The travel ban has been extended to all countries. Visits to aged care facilities are restricted. The importance of spatial isolation has been reiterated.

But results from these sensible measures won’t be evident immediately. In fact, as the Figure below shows, the coronavirus continues to grow rapidly in Australia. We are still on the ‘scary’ part of the curve. As of yesterday, we had 449 confirmed COVID-19 cases. Italy had about the same number of cases on February 26, and now has more than 28,000.

We don’t know how the number of Australian cases will grow in the future. Spain, Iran, and Italy stayed roughly on the path of doubling every two days (shown above). France and the UK doubled every 3 days. Singapore has managed to slow its growth, with cases now doubling every 10 days. In the past week, Australia has doubled its cases every 3-to-4 days.

The actual number of people infected with COVID-19 is likely to be larger than we know now. It takes time for somebody to contract the virus, develop symptoms, get a test, and then get diagnosed. The Figure below shows the number of new cases each day in China between January and early February. The researchers, Wu and McGoogan, used detailed patient records to establish when symptoms first became apparent (in red) and when people were diagnosed (in orange).

Chinese cities were put into lockdown from 24 February. By then, the ‘real’ rate of new infections was five times higher than newly diagnosed cases. The lockdowns slowed the growth in people reporting symptoms almost immediately, but official numbers continued to grow for 7-to-10 days.

The impact of the new measures Australia has introduced will take time to show up in official cases. It’s a step in the right direction, but we are unlikely to see the flow-through to lower case numbers for another week.

Co Authors :

Grattan Institute is sending its staff home. Here’s why other employers should urgently consider doing the same

Grattan Institute’s 30 staff will be working from home from Monday. We thought we’d tell you why, because our reasons for closing our inner-Melbourne office may help other employers – and employees – who are grappling with this very difficult decision.

The less people are physically near each other, the lower the rate of transmission of coronavirus. That’s why ‘social distancing’ – or more accurately, spatial distancing – is a key strategy to slow the spread of the virus. But for the 13 million Australians with jobs, this spatial distancing can affect their ability to work.

We recommend businesses that can feasibly allow staff to work from home should do so as soon as practical. Here’s why.

As of Thursday 19 March, we estimate there is a 10 per cent chance that at least one employee in a company of 500 people has already interacted with a person with COVID-19.

That’s based on the following assumptions. First, in keeping with research by Imperial College London, we assume that two-thirds of people who contract coronavirus will develop symptoms significant enough that they will self-isolate. That would leave one-third of cases in the community, with only mild symptoms. These people are unlikely to get tested. So we assume that for each two confirmed and quarantined cases, there’s one case in the community.

Second, we assume that workers interact with five unique people in the community each day, such as family members, colleagues, and people in supermarkets or cafes. This assumption might be too high if people have been practising spatial distancing, but could be too low if people are carrying on business-as-usual. We assume the population is ‘well-mixed’ – that is, that Australians are free to move about. Given low levels of interstate travel now, the virus may spread slower in states where cases per capita are low.

Finally, we assume that cases in Australia will continue to grow at the same rate as now – doubling every 3-to-4 days. This is slower than in Italy or Iran, but faster than in Singapore or Japan.

Our estimate does not imply there is a 10 per cent chance that someone in a company of 500 people has the virus, but of course the risk of infection increases with the number of times staff are exposed.

The larger the business, the more likely someone has been exposed. The risks are higher for NSW-based companies (because there is more untracked community transmission there), and lower for companies in other states. And the chances increase with each passing day.

Of course, working from home is not possible for everyone. Some companies’ core business is face-to-face human interaction. The easier it is for a business to allow staff to work from home, the lower the risk of infection which should be tolerated.

While Telstra was able to send 20,000 staff home last week, employees at businesses such as cafes, electrical services, and supermarkets need to be physically present to do their job. These employees should follow hygiene advice and practise spatial isolation as best they can in their jobs. This is especially the case for workers providing essential services: grocers, police, and healthcare professionals, for instance.

And companies that do implement working-from-home policies need to provide staff with adequate assistance to set-up their home, and then provide ongoing support. Companies should ensure that social interaction opportunities continue, albeit virtually.

Community based psychology services should be re-purposed to support people working from home. And if childcare centres close, having more adults at home reduces the need for nannies, potentially freeing up childminding services for parents in the healthcare sector.

Decision-making is hard in the face of uncertainty. But businesses need to act early to protect their staff – and the community.

Co Authors :

As the COVID-19 crisis deepens, few Australians have much cash in the bank

Australians are staying home in droves and businesses are closing by the hour. This is good for public health, but bad for many peoples’ incomes. And many Australians don’t have enough cash in the bank to get them through a sustained period of little or no income.

About 10 per cent of working households have less than $90 in the bank, according to Grattan Institute analysis of ABS survey data. Half of working households have less than $7,000 in the bank.(This data is a couple of years old, but the picture is unlikely to have changed materially for most households — data from the RBA shows that households’ financial assets increased a little between 2018, when the ABS survey was conducted, and September 2019, the latest quarter for which the Bank has published data.)

‘Working households’ — those in which at least one person had a paid job — are likely to be the hardest hit by this crisis. Many households that rely on payments such as Newstart or the Age Pension were already doing it tough before the crisis, but the crisis will not cause their incomes to fall. Retirees living off the Age Pension and their private savings are also unlikely to suffer cash-flow problems.

As you might expect, working households on lower incomes tend to have less in the bank. Among working households in the bottom fifth of household income, the median total bank account balance is just $1,350. For households in the top fifth of the income distribution, the median is $24,400 in the bank. The meagre savings of many low-income workers are a big worry because they are most likely to be employed as casuals and therefore not have paid sick leave or annual leave.  

What really matters in the weeks and months ahead is how long households are able to sustain themselves if their income disappears, or is drastically reduced. To roughly measure this, we can calculate how many weeks’ income each household has in the bank. For example, if a household has a weekly income of $2,000, and $4,000 in the bank, then it has two weeks’ income in the bank.

Our analysis shows that half of working households have 5.6 weeks’ income or less in the bank. The bottom 40 per cent of working households have about 3 weeks’ income or less in the bank. A quarter of all working households have less than one weeks’ income in the bank. Even at the top, about 40 per cent of the highest fifth of income earners have less than 4 weeks’ income in the bank.

It’s clear that many Australian households will need help if they lose their livelihoods through the COVID-19 crisis. They should be a high priority for the Morrison Government as it puts together its second economic support package.

Note: this post was updated on 20 May 2020. The third graph was added to the post. No other changes were made.

Co Authors :

As more Australians get COVID-19, will we have enough hospital beds?

The number of confirmed COVID-19 cases in Australia has been doubling every 3-to-4 days. This is not surprising: the slowly-increasing measures put in place over the past week by the federal and state governments will take time to slow the growth of case numbers. But we should be clear: a shutdown of anything that isn’t truly essential will be needed to avoid overwhelming the healthcare system.

In the coming days and weeks, the number of Australians diagnosed with COVID-19 will rise quickly. This will place great pressure on our health services, staff, and infrastructure, including intensive care units (ICUs).

The likelihood that people who are diagnosed with COVID-19 will be admitted to an ICU depends on their age. About 20 per cent of people over 80 will need to be admitted to an ICU, while the rate for 50-to-59 year-olds is 1.2 per cent. Given Australia’s demographic make-up, the overall ICU rate is estimated at 2.2 per cent of diagnosed cases.

The Figure below shows that with Australia’s current rate of doubling of cases every 3-to-4 days, our ICUs will reach current capacity in mid-April. When we hit a trigger point of 12,000 new cases every day, then we know that we will hit our current ICU capacity soon after if new cases continue to grow.

In the scenario of cases doubling every three days, we would reach current ICU capacity on April 11. If cases double every four days instead, we reach ICU capacity a week later on April 18. Slowing the growth to doubling every five days would buy another week.

States are already purchasing additional ventilators to double ICU capacity, but machines need staff to operate and monitor them. Trained staff are not immediately available and so some relaxation of enterprise agreement conditions about staffing may be required during the peak of the pandemic. There are also other patients who will require ICU beds, reducing the number of available beds. But, looking at the Figure above, the only thing that matters right now is the rate of growth.

The initial plans to ‘flatten the curve’ would still lead to more than 100,000 new cases per day at the peak of the pandemic. While this approach will buy us time, we will still run out of ICU beds in Australia.

This will force us to confront ethical dilemmas as to who gets admitted to the ICU and for how long, and who remains in a hospital bed with less intensive treatment. These ‘tragic choices’ that families and health professionals face are the consequences of broader social and political decisions about the toughness of spatial isolation policies. The quicker we can reduce the rate of infection, the better the health system will be able to cope. Older people are more at risk of ICU admission (and death) and so we should be particularly aiming to reduce infection in the elderly.

Our gloomy ICU forecast is primarily determined by the exponential growth in diagnosed cases. This is what needs to change. The goal should be to bring new cases in Australia down to zero as quickly as possible. All state governments must act decisively and bring in a broad shutdown now.

Co Authors :

COVID-19: Giving people early access to their super is the right move

The Prime Minister has announced that people who lose their jobs or have their hours cut because of the COVID-19 crisis will be able to take up to $20,000 from their super accounts – $10,000 this year and a further $10,000 next year. It’s a good move. It will put money in the hands of people when they need it most. Retirement incomes would fall if workers withdraw their super, but not by as much as you might expect, especially for middle-income earners. Instead it’s government, via higher Age Pension payments, that could bear much of the cost.

Early withdrawals may not mean big falls in retirement incomes

Our modelling suggests that a 35-year-old who takes the full $20,000 allowed from their super will see their balance at retirement fall by around $58,000. For someone earning the median wage of about $60,000 today, they can expect their total super income through retirement to fall by around $80,000 in today’s dollars. But their total retirement income would fall by only $20,000 in today’s dollars, or around $800 each year. The Age Pension is means tested – the higher your super balance, the less pension you get. So workers who take money from their super will lower their super balance at retirement, but they will receive more Age Pension – helping to soften the blow.

The story is a little different for high-income earners. The total retirement income of a worker earning around $110,000 a year today (more than 90 per of workers of that age) would fall by around $70,000, or around $2,700 a year, if they withdrew the full $20,000 from their super over the next few months. They would lose the same amount in superannuation as a middle-income earner, but receive less Age Pension to compensate, since they’re ineligible to receive an Age Pension for most or all of their retirement.

Of course, many workers would be withdrawing their super at a bad time: the value of the ASX 200 has already fallen by about 40 per cent in the past month. If markets recover next year, that $20,000 in withdrawn super could soon enough be worth about $30,000 again. If that’s the case then the hit to retirement incomes is larger: $33,000 over the course of retirement for the median worker and $106,000 for a worker at the 90th percentile of all wage earners.   But for many Australians facing bankruptcy in the coming months, it’s a trade-off that may well still be worth it.

Putting cash in people’s pockets now is the priority

Australians are in the middle of an enormous liquidity crunch due to COVID-19. More businesses are closing by the hour. Casual workers will be particularly hard hit, but many part-time and full-time employees will soon become unemployed or have their hours reduced.

Most workers, including many on middle and high incomes, don’t have much money in the bank for a rainy day. Half of Australian working households – those with at least one employed person – have less than $7,000 in the bank, including mortgage offset accounts. About 20 per cent have less than $500.

The Government is temporarily doubling the rate of Newstart and accelerating people’s access to the payment by relaxing the assets test. But even a higher rate of Newstart won’t cover many people’s costs, especially people who are on higher incomes. Even at the top, about 40 per cent of the highest fifth of income earners have less than 4 weeks’ income in the bank.

Diverting superannuation money from retirement into Australians’ wallets today is not without cost. But it will put money into the hands of people when they most need it. And they need it now.

Co Authors :

Australia’s COVID-19 cases are still growing rapidly. Our hospitals may soon hit capacity.

Cases of COVID-19 are still growing rapidly in Australia. We had 2,630 confirmed cases as of 25 March, up from about 700 a week before.

Pressure on health services is mounting. As we showed in a Grattan Blog post on March 24, if cases continue to grow at this exponential rate, Australia will hit capacity in hospitals Intensive Care Units (ICUs) in mid-April.

Major efforts are being made to boost the number of ICU beds across Australia. But the only thing that matters is the number of new COVID cases. If cases double every three days, doubling ICU capacity will only delay hitting the ICU cap by three days. Cases have been doubling every 3-to-4 days for the past three weeks.

While daily case numbers reported by each state are a bit jumpy, the number of new cases in Australia has flattened in the past couple of days. If this flattening trend continues — if lockdowns and spatial distancing are working and our cases numbers move from growing exponentially to linearly — the situation will be very different. But it is too early to tell if this is a genuine slow-down.

Australians do appear to be changing their behaviour in response to the spatial distancing and quasi-lockdown measures imposed by the state and federal governments over the past weeks. The chart below shows that the number of trips taken by people Melbourne and Sydney has fallen to about 25 per cent of normal.

But the number of trips has fallen further in other international cities with tougher spatial distancing restrictions. It is hard to believe that these Australian travel patterns reflect compliance with an injunction to stay at home except for essential trips.

Australians must be more compliant with spatial distancing measures. Analysis released this week by Chang et al (2020) shows that compliance rates of 80 or 90 per cent are required for spatial distancing to have the desired effect. The chart below shows that at even at 70 per cent compliance, the number of infections will continue to grow rapidly.

The spread of COVID-19 cases slowed in China about 10 days after strict lockdowns were put in place. Italy fully locked down two weeks ago and has just started to record a decline in new cases.

Whether the measures Australia has put in place will slow the spread here will not be known for about 10 days. By then, if  our COVID-19 case numbers continue to rise exponentially, our ICU beds will have started to fill up. And, by then, any further lockdown measures will take another fortnight to have an effect. It will be too late.

We must continue to clamp down on the spread of COVID-19.

Co Authors :

COVID-19: What the states and territories are spending

Every state and territory government in Australia has announced a spending response to the COVID-19 crisis. The measures, including loans, tax deferrals, and health spending, so far total almost $15 billion. This compliments the almost $194 billion in direct economic measures already announced by the Federal Government.

At 2.8 per cent of gross state product (GSP), the Tasmanian Government’s response is the largest so far.

Queensland Premier Annastacia Palaszczuk last week announced a $4 billion package, taking her state’s response to $4.5 billion, about 1.2 per cent of GSP.

South Australia has announced measures amounting to 1.0 per cent. Western Australia, Victoria, NSW, the Northern Territory, and the ACT’s responses range from 0.6-to-0.3 per cent of GSP, as this chart shows.

About 28 per cent of the spending by the states and territories is on hospitals and health care, including Intensive Care Unit (ICU) capacity, COVID-19 testing, ventilators, medical equipment, and respiratory clinics.

46 per cent of the money will go to supporting business, most of it via payroll tax relief. All six states will waive the levy for select sectors.

Another 14 per cent is destined for households. This includes rebates and freezes on household fees and charges, as well as money for retraining and redeploying workers who would otherwise have lost their jobs.

Other initiatives include direct support for employment, bringing forward of capital and maintenance expenditure, and support for community groups and charities.

Largest budget measures in each state and territory:

Co Authors :

Tracking the impact of COVID-19 on the Australian economy

Man using Grattan COVID-19 econ tracker on his desktop computer

We live in difficult economic times. But while we wait on the official statistics to see just how bad things get, policy makers and citizens are making decisions on how to manage the fallout. To help inform these decisions, Grattan has identified what we think are the best early measures of how Australian households and businesses are faring through the crisis.

The Grattan Econ Tracker is a new public dashboard illustrating the impacts of COVID-19 on the Australian economy. Split into three themes, you can find the latest indicators of business activity, jobs and unemployment, and consumer spending and mobility.

Whether you’re a policy maker, journalist, researcher, or concerned citizen, we hope you will find the Grattan Econ Tracker convenient and informative. It complements the Grattan Coronavirus Announcements Tracker, which documents all Australian government decisions by date and type, and is continuously updated.

Grattan will update the econ dashboard as frequently as the data sources allow – in some cases this is daily, in others weekly or monthly. Our selection of indicators will evolve over time as new and better data becomes available.

No single measure tells the whole story but together they paint a picture of how the economy is tracking. The early signs suggest the economic impact of COVID-19 is already very large. As the health situation improves, and shutdown measures are eased, we look forward to seeing the economic recovery in these indicators too.

Co Authors :

Why we’ve downloaded the COVIDSafe app

COVID-19 COVIDSafe app on an android phone

About 1.9 million Australians – about 8 per cent of us – downloaded the COVIDSafe app in the first 22 hours of its release.

The speed of the uptake may have exceeded Health Minister Greg Hunt’s expectations, but it is still well short of the 10 million users the app will need to work effectively. And while early adopters are a promising sign, it is no guarantee of mass acceptance of the app.

In Singapore, 1.1 million users had downloaded their TraceTogether app (on which the Australian version is based) in the first month; but half of these downloads came within the first 24 hours. If Australia follows the same path, we will have around 4 million users – 16 per cent of the population – by the end of May.

Whether the Australian Government can convince more of us to download the COVIDSafe app depends on its actions, through legislation, its communication, and its openness.

If you download the COVIDSafe app, which contains a unique encrypted key, it sits silently on your phone. When your phone comes into contact with another phone carrying the app, they exchange keys. If you are subsequently diagnosed with COVID-19, a health professional will give you a PIN which you can choose to enter into the app. If you give your consent, a list of encrypted keys will be uploaded to your state or territory health authority, so they can more easily trace people you have been in contact with over the past few weeks. Nobody, including the health professional or you, can access the contacts through the app on the phone.

Wide use of the app will help the fight against spread of the virus in Australia, because it will help our health authorities to trace the contacts of people with COVID-19 more quickly and comprehensively.

It is noteworthy, and pleasing, that the app has received broad support from the health sector in Australia, and from the Australian Privacy Commissioner.

Technology professionals have decompiled the Android version of COVIDSafe and explored the source code, finding that the app does what it says it does. Minister Hunt announced this morning (Monday 27 April) that the source code for the app will be released in a fortnight. This is a welcome step towards greater openness.

There are two main privacy concerns with the app.

Firstly, the Federal Government has an ‘anything it takes’ attitude to use of personal information in pursuing people who are critical of it or its policies. This includes a track record of leaking personal information, despite there being legislative safeguards against this. Within the past fortnight, there was an apparent leak from the Department of Health against the prominent ABC health journalist Dr Norman Swan, who has criticised the Government’s pandemic response. It is understandable that, despite all the talk of strong safeguards, many Australians will remain concerned about potential misuse of their personal information.

The second concern is not with the app or the legislation as they stand now, but as they might evolve. Fear of ‘function creep’ – where data is used beyond its original purpose – is valid. Indeed, the Federal Department of Health has acknowledged ‘public concerns that information collected by the app will be used for purposes other than contact tracing, including law enforcement’.

The Government will introduce legislation in the next parliamentary sitting week to ‘establish a strict legal framework’ for use of the application’s data. This will go some way to assuage concerns about function creep. But more needs to be done.

Each of us will have to weigh-up these concerns against the undoubted benefits that the app provides. The benefits of the COVIDSafe app will depend on the number of Australians who use it. The app brings traditional public health contact tracing in Australian into the 21st century. Fast, accurate contact tracing, combined with increased testing capability, will help health professionals minimise the spread of COVID-19, and respond quickly to future flare-ups. It may enable people to safely return to school, university, or work sooner.

Despite the risks, we have decided to download the app as part of our support for sensible public health measures to reduce COVID-19 infections in Australia.

Co Authors :

How children get and transmit COVID-19 is still a mystery

Small child in window of house with facemask COVID-19

Despite the unequivocal assurances provided by the Deputy Chief Medical Officer and the federal Education Minister, much about COVID-19 remains a mystery. There’s still a lot we don’t know about how the virus affects children. That means the stakes are high when deciding whether kids go back to school now, either full or part-time, or remain at home for now and return at the start of Term 3.

Children can get COVID-19, but we don’t know whether they are less likely to become infected

One thing we do know is that children of all ages can get COVID-19. There have been 271 confirmed cases of children with COVID-19 in Australia so far. Some studies, discussed below, suggested they were less likely to catch the virus than adults, but good recent evidence suggests children may be just as vulnerable.

Under symptom-based testing, such as has been the policy in Australia until recently, asymptomatic people with COVID-19 are unlikely to be tested and diagnosed. So symptom-based testing tells us how many symptomatic people tested positive for COVID-19, rather than how many people have COVID-19. Tests are mostly done on people who appear sick, and asymptomatic people, by definition, do not appear sick. Evidence so far suggests many children with COVID-19 are symptom-free.

To discover the COVID-19 rates for children, people without symptoms need to be tested. This happens in two scenarios: when all close contacts of a confirmed case are tested, and when a random sample of people is tested.

In Iceland, 10,800 asymptomatic people were tested for COVID-19 in mid-to-late March. About 0.8 per cent were positive. Of the 848 children under 10, none had the virus; of the 1200 children aged 10-19, 0.4 per cent tested positive – half the rate of the adults.

In Germany, a COVID-19 lab processed 60,000 tests. Of the 2,200 children under 11, 2 per cent tested positive; of the 1,900 people aged 11-20, 4 per cent had the virus. About 22,000 adults aged 20-40 were tested over the same period, suggesting they were more likely to have symptoms. But only 5 per cent of them were positive for COVID-19, not much higher than the rate for the children.

In a well-designed study, the Shenzhen Center for Disease Control and Prevention identified 391 COVID-19 cases and 1,286 close contacts. It looked at people in households with a confirmed COVID-19 case. The authors found that children were ‘just as likely’ to contract the virus as adults under 50.

That finding runs counter to analysis published a few days later, in which researchers examined the contract tracing information from the CDC in Hunan, China. Contacts to COVID-19 positive patients were placed under medical observation for 14 days. Analysis of people’s susceptibility to the virus concluded that children did have a lower risk of infection.

Children can spread COVID-19, but we don’t know whether they spread it to fewer people

Another thing we know is that children can pass on COVID-19 to adults and other children. But observational evidence so far has shown that they are less likely to spread the virus than adults.

At the beginning of the COVID-19 epidemic in Australia, the National Centre for Immunisation Research and Surveillance (NCIRS) studied 9 adult and 9 child cases of COVID-19 in 15 NSW schools. The study identified 832 ‘close contacts’ – 735 of them children. One-third of this group were interviewed, tested with nasal swabs 5-to-10 days after contact, and had a blood sample examined for antibodies one month later.

One child in primary school tested positive on both the nasal swabs and for antibodies; and one child in high school tested positive for antibodies, but not on the initial nasal swab.

These cases happened in early March, before government recommendations for spatial distancing and lockdowns. Back then, Australia had done very little to reduce the spread of COVID-19. That two children out of 288 tested positive indicates that child-to-child transmission is possible, but suggests the rate of transmission is low.

The NSW study is in line with other observational studies. In a case study of an outbreak in the French Alps, a symptomatic child visited and had ‘close interactions’ in three schools without passing on the virus to anyone. The authors said this suggested ‘different transmission dynamics in children’.

A multinational study of 33 household clusters found that a child under 18 was the initiating contact (‘index case’) for three. The authors of this study note that this is well below otherwise similar infections such as the H5N1 influenza virus, in which children are the index case about half the time.

In the Netherlands, the Ministry of Health studied 54 households with COVID-19 infections and found that while children did become infected, they were never the source of the spread.

Whether or not schools were open at the time of infection is important for studies that examine household index cases. A detailed study of 36 paediatric cases in Zhejiang, China, found that almost all children got the disease from family members rather than the community or other children. But schools were closed for the spring festival holiday during this period, so child-to-child contact was drastically reduced.

One thing we don’t yet know is why an infected, symptomatic child would spread the disease less than an infected, symptomatic adult.

The virology data to date suggest children are as infectious as adults. A study of 3,700 COVID-19 patients in Germany found there was no difference in the viral load – a measure of infectivity – between people in different age groups, including children. The virologists concluded that their findings, combined with the evidence of children’s vulnerability to infection,suggested that the ‘transmission potential in schools and kindergartens should be evaluated using the same assumptions of infectivity as for adults’.

Children with COVID-19 are less likely to become severely ill, but we don’t know whether they suffer long-term effects

We know that children with COVID-19 can become severely ill. But the available evidence strongly suggests they become severely ill at lower rates than adults.

In a comprehensive study of 2,135 paediatric cases in China, more than half had mild (flu-like) symptoms at worst. About 40 per cent had moderate symptoms, such as pneumonia, frequent fever, and dry cough. The remaining 5 per cent were classified as severe or critical, compared to 19 per cent of adults in China at the same time.

While the severe-illness rates for children with COVID-19 are low, the medium- and long-term effects are still unknown. This week the UK Health Secretariat warned of a serious emerging syndrome affecting children, potentially related to COVID-19. There have been similar reports in Italy. Only time and regularly updated research will tell us how serious this is.

We do know that children can and do die from COVID-19. There have been deaths of children in China, the United States, the United Kingdom, France, and other countries with substantial outbreaks. Death rates of children with COVID-19 are very low. But there are 4 million school children in Australia, meaning that in an outbreak, even a low death rate could translate into the deaths of many children.

In the face of this uncertain evidence, in deciding whether to open schools, policy makers have to weigh up the evidence – what is the likelihood of infections, of passing that infection along, and what are the potential health and economic consequences. Because we have seen no child deaths from COVID-19 in Australia, decision makers may be inappropriately ignoring that possibility. We all are prone to ‘optimism bias’ – erring on the positive on all the issues which should be taken into account in the difficult decision.

Although children are much less likely to get seriously ill and die, it is possible this will occur. It is probably the case that they are less likely to transmit the virus than adults, but nevertheless they can be the primary source of transmission. It is wrong for decision makers to pretend that the evidence is clear when it is not. Opening schools is not a risk-free choice and should not be portrayed as such.

There is uncertainty around COVID-19 and its effects on and transmission through children. We are safer if we make decisions while fully aware of that uncertainty, rather than with an unfounded surety. We need to know how firm the ground is under the science that guides our decisions. Only then can we properly assess the risks, measure the trade-offs, and make the tough decisions that need to be made about our schools – and about protecting our children.

Co Authors :

Tracking economic uncertainty in the age of COVID-19

A defining feature of the COVID-19 crisis is the uncertainty it’s created. Just how deadly is COVID-19? Will relaxing lockdowns lead to second and third waves of infections? And how far off is a vaccine, if we ever get one? These questions have enormous implications for our health and prosperity. Yet there are still no good answers.

The uncertainty could be very costly for the Australian economy. Firms are unlikely to invest, and households unlikely to spend, unless they’re confident COVID-19 won’t re-emerge.

Economic uncertainty spiked to recession levels in March but fell a bit in April

The Economic Policy Uncertainty Index, created by US-based economists Scott Baker, Nick Bloom, and Steven Davis, measures the frequency of articles featuring words such as ‘economics’, ‘policy’, and ‘uncertainty’ across eight major Australian newspapers. The creators have shown that past bouts of uncertainty have foreshadowed declines in investment, employment and GDP.

The Economic Policy Uncertainty Index for Australia rose sharply in March to levels higher than during the Global Financial Crisis. The index fell a little in April but remains well above pre-COVID-19 levels.

And while economic uncertainty in Australia might be declining in response to our ccess in controlling the virus here, uncertainty globally remains at record highs especially in the world’s two largest economies: the United States and China.

Financial measures of uncertainty tell a similar story

The S&P/ASX 200 VIX, commonly referred to as the ‘investor fear gauge’, measures sentiment about the future volatility of the ASX 200 index of Australian equities based on options prices. It hit its highest level in 10 years on 18 March, the day the Federal Government recommended all Australians abroad should return home as soon as possible. The VIX has declined since then but remains above its pre-crisis trend.

Uncertainty matters for Australia’s economic recovery

Research from the Reserve Bank of Australia in 2016 found that high uncertainty causes households to save rather than spend, and firms to act more cautiously, reducing investment and employment growth. More recent research by the creators of the Economic Policy Uncertainty Index suggests that United States GDP could decline by 11 per cent by the end of 2020, and about half of the fall could be due to the record high levels of uncertainty.

The shutdowns to control the spread of COVID-19 in Australia have hit consumer and business confidence hard. An ABS survey of businesses released this week found more than two-thirds expected a reduction in turnover or cash flow as a result of COVID-19 in the next two months, compared to 53 per cent that expect their operations to be restricted by government public health responses.

The investment, hiring, and spending required for a strong recovery are unlikely to occur until the uncertainty is resolved. While the Federal Government is spending almost $200 billion in the next six months to insulate Australians from the economic costs of COVID-19, there will be no sustained economic recovery in Australia until we’re certain we’ve got the virus under control. And unfortunately, even if COVID-19 lockdowns soon end, the uncertainty over whether they’ll need to return won’t go away.

Co Authors :

Job losses caused by COVID-19, electorate by electorate

Workers right across Australia have been hit hard by the COVID-19 shutdowns, but some electorates have been hit harder than others.

What we looked at

To find out the job-loss story electorate by electorate, we use ABS data on the share of payroll jobs lost in each large sub-state region (called a Statistical Area 4, or SA4) between the week ending 14 March and the week ending 18 April.[1] Payroll jobs are those where workers are paid through Single Touch Payroll (STP) software. The data captures most workers in Australia: about 99 per cent of employers with 20 or more workers and 71 per cent of employers with 19 or fewer workers use STP software.

We estimate the share of payroll jobs lost in each electorate by taking the share of jobs lost in all SA4s overlapping the electorate, and then calculating a weighted average job loss based on the percentage of the electorate’s residents living in each overlapping SA4 in 2016.[2] Job losses in electorates are mapped on where workers live, rather than where they work.[3]

What we found

Unsurprisingly, electorates with large tourism industries and a high share of hospitality workers have been hit especially hard. The two worst-affected electorates are Cowper (11.6 per cent of jobs lost) and Lyne (10.7 per cent), around the Mid North Coast of NSW and Coffs Harbour. The third and fourth worst-affected are Fairfax (10.2 per cent) and Fisher (10.2 per cent), covering the Sunshine Coast in Queensland. A larger share of workers in these electorates are employed in accomodation and food services, which saw 33 per cent of jobs lost by 18 April. Of the 10 worst-hit electorates, five are in Queensland, four in NSW, and one in South Australia.

But even those electorates least affected by COVID-19 have suffered big job losses. The outer-suburban Sydney electorate of Chifley lost 4.4 per cent of jobs between 14 March and 18 April, followed by Greenway in suburban Sydney (4.4 per cent), Fremantle (4.6 per cent), and Brand in outer-suburban Perth (4.6 per cent). Of the 10 least affected by COVID-19, five are in Western Australia, four in NSW, and one in the Northern Territory.

Rural and regional electorates have been hit harder than metropolitan electorates

Workers living in rural and regional electorates have been hit much harder than workers in the major cities.

Eight of the 10 hardest-hit electorates are in rural and regional areas. Half of all rural electorates lost more than 7.5 per cent of jobs between 14 March and 18 April, compared to 16 per cent of inner-metropolitan electorates and 11 per cent of outer-metropolitan electorates.

Nine of the 10 hardest-hit electorates are held by the Coalition. Tanya Plibersek’s inner-city electorate of Sydney, which ranked 10th with 8.9 per cent of jobs lost, was the hardest-hit Labor electorate.

Nine of the 10 least-affected electorates are in inner- or outer-metropolitan areas, five of them held by the Coalition and five by Labor.

We plan to update this Blog post as the ABS releases updated job loss data.

Underlying data

You can download the underlying data on federal electorates ranked by the share of jobs lost as well as the electorates regional classification, state and sitting member here.


[1] More recent ABS payroll data shows the total number of jobs lost from the week ending 14 March to 2 May (7.3 per cent) is broadly in line with job losses to 18 April (7.1 per cent). However a regional breakdown of the more recent data is not yet available.

[2] Take the electorate of Corangamite in western Victoria as an example: in 2016 Corangamite recorded 96.3 per cent of residents living in the Geelong SA4, where 7.0 per cent of jobs have recently been lost; and 3.7 per cent of residents living in the Warrnambool and South West SA4, where 8.6 per cent of jobs have recently been lost. From this we estimate that Corangamite has lost 7.06 per cent of jobs, calculated from 0.963 times 7.0 plus 0.037 times 8.6.

[3] Job losses in the ATO payrolls data are recorded based on the individual’s residential address as stated on their income tax return.



Co Authors :

Researcher at Grattan Institute

The latest jobs data shows urban electorates are now being hit hardest by COVID-19

New ABS data on firm payrolls shows the changing shape of job losses from COVID-19. Previously hard-hit rural electorates in Queensland and NSW with large tourism industries have regained some jobs, while many urban electorates are now among the hardest hit.

Hard-hit rural electorates are recovering as hospitality and retail reopen

Our previous analysis of job losses to mid-April showed that rural electorates, particularly those in Queensland and NSW with large tourism industries, had lost a greater share of jobs than city electorates.[1] Then, nine of the 10 hardest-hit electorates were held by the Coalition. Tanya Plibersek’s inner-city electorate of Sydney was the hardest-hit Labor electorate.

Now, new data to 30 May shows that previously hard-hit rural electorates recovered some of their lost jobs through May. For instance, the electorates of Cowper and Lyne on the mid-north coast of NSW recovered nearly half of their lost jobs between mid-April and the end of May. The electorates of Fairfax and Fisher covering the Sunshine Coast in Queensland also bounced back a bit. In mid-April, they had lost 10.4 per cent of the jobs they had in mid-March; by the end of May, that figure had fallen to ‘only’ 7.6 per cent.

Job gains since mid-April have been strongest in hospitality and retail, which regained 7.3 and 3.4 per cent of the jobs lost since 14 March.

Overall, firm payrolls to 30 May show job losses from COVID-19 have slowed. Total payroll jobs increased by 1 per cent through May, with 7.5 per cent of jobs lost since mid-March, compared to 8.9 per cent in the week ending 18 April. Most electorates gained jobs between 18 April and 30 May.

Urban electorates are now the hardest hit

The new data show that nine of the 10 hardest hit electorates are now either inner- or outer-metropolitan. Eight of the top 10 are held by Labor, and the remaining two are held by the Greens and an independent. The electorates of Melbourne (held by the Greens’ Adam Bandt) and Sydney (held by the ALP’s Tanya Plibersek) are the worst and second-worst affected electorates.

Many of the-hardest hit electorates in urban areas have suffered further job losses since mid-April. One reason is the sharp fall in second jobs, which in part reflects the fact that JobKeeper payments are limited to a single job for an individual employee. People who live in inner-city electorates are more likely to hold multiple jobs.

Another explanation of the figures is the shift in job losses towards industries more heavily focused in urban areas. For instance, the information media and telecommunications sector suffered big job losses between mid-April and the end of May, from 8.5 per cent to 10.5 per cent. Job losses in professional, scientific, and technical services also increased over that period, from 4 per cent to 4.4 per cent. These ‘second-round’ job losses may well intensify even as job losses from COVID-19 in sectors directly affected by spatial distancing continue to dissipate as the economy reopens.

The worsening story in inner-city electorates also reflects data revisions from the ABS, especially around JobKeeper. For example, the share of jobs lost in the electorate of Sydney were revised from 8.9 per cent to 10.8 per cent for mid-April. Jobs lost in the electorate of Melbourne were revised up to 10.1 per cent, from 7.8 per cent previously, and from 7.5 per cent to 9.5 per cent in the inner-city electorate of Wills in Victoria. These data revisions reflect the impact of JobKeeper itself, including expanded coverage of smaller employers through the ATO’s single-touch payroll system since it’s the mechanism for delivering JobKeeper payments, as well as other refinements of the ABS approach.

Note and underlying data

You can download the underlying data on federal electorates ranked by the share of jobs lost as well as the regional classification, state and sitting member here.

As noted above, the ABS has also revised its earlier data releases. As a result, the change in payroll jobs between 14 March and 18 April has also changed since our previous Blog post. To show the effect of the revisions, we include both our old and new estimates for the change in jobs between 14 March and 18 April in the data sheet provided.

[1] Grattan Institute previously estimated the COVID-19 job-loss story electorate by electorate between the week ending 14 March and the week ending 18 April, using ABS data on the share of payroll jobs lost in each large sub-state region (called a Statistical Area 4, or SA4).

Co Authors :

Victorians must all share the lockdown load

Victorians in 10 postcodes across Melbourne’s north and west have been ordered back into lockdown. But regaining control of COVID-19 remains the responsibility of all Victorians.

The virus is spreading in other parts of Melbourne, beyond the 10 ‘hotspots’. These new cases are coming from transmission in the community rather than from overseas arrivals. Victoria has more cases of community transmission now than it did in the initial peak of the virus in March.

Following the early success in flattening the curve, Victorians have mostly – but not entirely – returned to normal patterns of life, as the chart below shows. They’re going back to their workplaces and out to the shops. Far fewer of them, however, are catching the train or hopping on a tram: public transport use remains at about half of what it was in January.

But for the 300,000 people living in the 10 hotspots, life has gone back on hold. Movement in and out of the lockdown zones will be partially controlled by police checkpoints. But suburbs are porous. And people in those suburbs are still allowed to leave the house, for essential shopping, care, exercise and – importantly – work.

So people will continue to make trips to their workplaces outside the lockdown areas. The chart below shows the job locations of the 130,000 workers who live in hotspot areas. Tens of thousands work in neighbouring suburbs. More than 10,000 work in the CBD, and thousands more work in Southbank, Docklands, and Parkville.

Strict social distancing practices in workplaces is therefore crucial if Victoria is to again drive cases down. All Victorians should work from home if they can. If they can’t, they should spend as little time as possible at their workplace.

Employers must do their bit. Businesses must ensure staff can avoid shared spaces and high-risk areas. Handshakes should be a thing of the past. Workplaces should be thoroughly cleaned regularly.

Locking down suburbs that are the source of rapid COVID-19 transmission is sensible. But these lockdowns don’t absolve other Victorians from their social distancing responsibilities. The virus still lurks. There are hundreds of active cases in the state, many of them outside the hotspots.

Grattan Institute modelling has shown that it is people’s behaviour when they are out in the community that will determine Victoria’s and Australia’s COVID-19 future. If people drop their guard while the virus is still around, it will spread with rapid and devastating effect.

Anyone who could come into contact with the virus bares responsibility for containing it. Right now, that means all Victorians.

Co Authors :

Early release of super doesn’t justify higher compulsory contributions

A big part of the Morrison Government’s response to COVID-19 has been allowing people early access to their superannuation. At the same time, compulsory super contributions are legislated to climb from 9.5 per cent of wages to 12 per cent over the next five years.

Many in the super industry argue that these scheduled increases must go ahead to repair the damage done to the super balances of Australians who withdrew some or all of their super during the COVID crisis.

But new Grattan Institute modelling shows that most Australians will have a comfortable retirement even if they’ve spent some of their super early.

Withdrawing super early will cost you less than you might think

Under the Government’s scheme, people who have lost their job, or 20 per cent of their work, were allowed to withdraw up to $10,000 from their super between April and June, and can take out another $10,000 between July and September.

Since April, 2.9 million people have applied for early access to their super, totalling $30.7 billion to dateOver 500,000 Australians have cleared out their super accounts entirely. And Treasury now expects total withdrawals to reach $42 billion by Christmas.

Retirement incomes will fall for workers who have withdrawn their super, but not by as much as you might expect. The government, via higher Age Pension payments, will bear much of the cost.

A 35-year-old who takes the full $20,000 allowed from their super will see their balance at retirement fall by around $58,000.

Someone earning the median wage of about $60,000 today can expect their total super income through retirement to fall by about $80,000 in today’s dollars. But their total retirement income would fall by only $24,000 in today’s dollars, or about $900 each year, because their lower super balance at retirement would be largely offset by larger pension payments.

The story is a little different for the lowest and highest income earners. They would lose the same amount in accumulated superannuation as a middle-income earner, but receive less extra Age Pension to compensate.

Australians that have withdrawn their super early will still have adequate retirement incomes

System defaults like the rate compulsory super need to be set so they work for most Australians. And while around one in five Australians have accessed their super early, that leaves four in five that haven’t.

Policy makers can only justify forcibly lowering someone’s living standards during their working life – by lifting compulsory super – if we are protecting them from even worse outcomes in retirement.

Nonetheless, our modelling shows that Australians can look forward to a comfortable retirement with compulsory super contributions of 9.5 per cent, even if they take the full $20,000 from their super.

Workers on all but the highest incomes will retire on incomes at least 70 per cent of their pre-retirement (post-tax) earnings – the so-called ‘replacement rate’ benchmark used by the OECD and others.

The median worker earning around $60,000 who takes out $20,000 in super at age 35 would see their replacement rate fall from 89 per cent to 88 per cent, assuming compulsory super stays at 9.5 per cent, still well above the 70 per cent benchmark.

Even if COVID means they remain unemployed for the next three years, making no super contributions, that worker would still end up with a retirement income of 86 per cent of what they earned in the years before retirement. And the more than 500,000 Australians that have emptied their super accounts completely, the impact on their retirement incomes is likely to be smaller since they have, by definition, withdrawn less than $20,000.

Retirement incomes would also remain adequate even for the many Australians who access their super early and work part-time or go on to take significant career breaks, such as to care for children. For example, someone who works for 32 years at the median income, and takes out $20,000 in super, will see their retirement income drop from 87 per cent to 85 per cent of their pre-retirement earnings. A median worker that only works 27 years and takes $20,000 in super would see their retirement income fall from 84 per cent to 81 per cent of their pre-retirement earnings.


The prospect of lower super returns – more likely because of the COVID recession – barely alters these findings. The reason is simple: for many Australians, most of what they lose in less accumulated super is made up for via larger Age Pension payments.

Many low-income workers will still receive a pay rise when they retire, even if they withdraw the full $20,000 from their super today.

Of course, some low-income Australians remain at risk of poverty in retirement – especially those who rent. But struggle even more before they retire.

And boosting Rent Assistance would do far more than higher compulsory super to help these vulnerable Australians, and without reducing their take-home pay before they retire as higher compulsory super would.

COVID-19 is just one more reason why compulsory super shouldn’t rise

Before COVID-19, there were good reasons to abandon the planned increases in compulsory super. COVID-19 is just one more reason.

Higher compulsory super would reduce workers’ take-home pay and do little to boost the retirement incomes of many Australians, while widening the gender gap in retirement incomes. The Government’s early release scheme does nothing to change that story.

The government will bear much of the cost of the super early release scheme via higher pension payments when today’s workers retire.

But raising compulsory super to 12 per cent would make the problem worse, since higher super costs the budget more in extra super tax breaks than it saves in lower Age Pension spending for decades to come. It’s a $2 billion a year hit to the budget once super hits 12 per cent, and those extra super tax breaks skew heavily to the wealthiest 20 per cent of Australian workers.

But most importantly, higher compulsory super would also exacerbate the economic problems caused by COVID-19. Past Grattan work has shown that higher super comes at the expense of workers’ wages. And the Reserve Bank agrees: it’s forecasting lower growth in wages next year when compulsory super begins to rise.

Scheduled increases will see household savings rise at a time when aggregate demand is weak.

Raising super in the midst of a deep recession would only slow the pace of economic recovery. And that would be bad news for all Australians, regardless of the size of their super account.

Co Authors :

8 in 10 hardest-hit federal electorates are now in Victoria

Updated ABS payroll data shows that job losses due to COVID-19 were clearly concentrating in Victoria, even before Stage 3 and 4 restrictions took effect across the state.

As of 11 July, 8 of the 10 hardest-hit electorates across Australia were in Victoria, with the exceptions being the NSW seats of Sydney and Kingsford Smith. The 3 hard-hit electorates were Gippsland, Monash, and Mallee, all in rural Victoria.

The number of jobs in Victoria was 7.3 per cent lower in mid-July than in mid-March, a deeper fall than any other state. In inner Melbourne, the number of jobs was down nearly 10 per cent from mid-March. There were also further job losses in NSW in the last two weeks of the data, due to rising fears of the virus.

These figures capture only the start of the Stage 3 lockdowns which were extended to all of Melbourne and the Mitchell Shire from 8 July.

The subsequent introduction of Stage 4 restrictions in Melbourne and the Stage 3 restrictions across regional Victoria will only add to the job losses in coming data releases.

Rural and inner-metropolitan electorates continue to be hit hardest

Our previous analysis of job losses to the end of May found that urban electorates were most affected by COVID-19, with 9 of the 10 hardest hit electorates in inner- or outer-metropolitan areas.

The updated data show that most of the job losses are still in urban electorates, but some parts of rural Victoria have also been affected in recent weeks. Of the top 10 hardest-hit electorates, 6 are in inner-metropolitan areas and 4 are rural. Five are held by the ALP, 4 by the Coalition, and 1 by the Greens.

Across all inner-metropolitan electorates, four-fifths have lost more than 5 per cent of their jobs since the start of the pandemic, and more than one-fifth have lost more than 7.5 per cent of their jobs. Of the electorates which have lost more than 7.5 per cent of their jobs, all but one are either in Victoria or in urban NSW.

On an industry level, the heaviest job losses are still in the accommodation and food sector, followed by arts and recreation. There has been a recent decline in jobs in the agriculture, forestry, and fishing industries.

Underlying data

You can download the underlying data on federal electorates ranked by the share of jobs lost as well as the regional classification, state, and sitting member here

Co Authors :

Tax-deductible childcare — the worst of all worlds

Many researchers and commentators have called for childcare costs to be made tax-deductible, as an alternative to the current means-tested subsidy. Such a policy may be superficially attractive because for many people, childcare is a cost borne because they are working. But making childcare tax-deductible would be a backward step. Most families, and especially low-income families, would be worse off than under the subsidy. And work disincentives would be even worse than they are now.

Most families would be worse off

A tax deduction will inevitably give more to high earners than to low and middle earners – the very opposite of the means-tested subsidy. So it’s no surprise that a switch from the subsidy to tax-deductibility would leave all but a handful of high-earning families worse off.

Take a family with two parents working full-time, each earning $40,000 a year, and two children in childcare. Their total childcare cost is currently about $57,000 a year, and they can claim about $46,000 a year in childcare subsidy. Under the tax-deductible option, this would be replaced with a tax deduction of only $4,500, leaving the family $42,000 worse off.

Even a family with much higher income would be worse off under tax-deductibility. A family with two parents working full-time, each earning $90,000 a year, and two children in childcare, can currently claim about $29,000 a year in childcare subsidy.  Under the tax-deductible option, this would be replaced with a tax deduction of $19,000, leaving the family $10,000 worse off.

Barriers to work would be higher for low and middle earners

A move to tax-deductibility would also be bad news in terms of work incentives. Grattan Institute research has shown that second earners (most often women) with young children face very large disincentives to increasing their work hours, especially if they are considering taking on a fourth or fifth day. A move to tax deductibility would exacerbate some of the worst disincentives.

The chart below shows the ‘workforce disincentive rate’ – the proportion of income from an extra day’s work lost through higher taxes, reduced family payments, and child-care costs – for second earners. Under tax-deductibility, the workforce disincentive rate would be more than 100 per cent for women earning $60,000 or less. That is, they would be paying for the privilege of working. Surely few would bother.

Cashflow would be a serious problem

The timing of receiving a tax deduction would also create huge cashflow problems for families. Under the Child Care Subsidy, an estimated subsidy is paid upfront to providers, and parents need only pay the ‘gap’. Under the tax-deductibility policy, parents would presumably need to pay the full amount upfront, and receive their deduction and rebate at tax time. Given the full cost of childcare is so large (about $29,000 per year per child for full-time care), this would create a cashflow squeeze for all but the most well-off families. Many households simply could not bear this cost upfront and would drop out of childcare and work.

An opt-in system would be too complex

Some proponents of tax-deductible childcare suggest a hybrid system where parents can choose to ‘opt in’ to tax-deductibility or continue to use the subsidy as per the current system. But an ‘opt-in’ system would be very confusing for parents, who would need to understand two different payment systems, and have a very good idea of their expected earnings for the coming year, to properly choose between a deduction and a subsidy. And this additional complexity would do very little to improve childcare affordability, since only a small number of high-earning families would be better off opting in to the deduction.

An increased subsidy would make childcare more affordable and reduce work disincentives

Reforming the Child Care Subsidy should be should be central to the Federal Government’s plans for lifting Australia out of the COVID-19 recession. An increased subsidy of 95 per cent for low-income households, gradually tapering for families with incomes above $68,000, would reduce disincentives to work, supporting higher workforce participation and boosting GDP by about $11 billion a year.

By contrast, switching to tax-deductibility would increase pressure on low and middle-income families and force parents, mainly mothers, out of the workforce by making childcare less affordable, further reducing the financial return from work. Not the result I think any of its proponents would be hoping for.

The track record of OECD Economic Surveys

To test the claim that Australian governments are less good at reform than in the past, we really need a list of policy reforms proposed in advance, so that we can see how many were implemented in the following years. Our results using reports from the Organisation for Economic Co-Operation and Development (OECD) are published in a Conversation article, and this post provides more detail on our methodology.

Between 1972 and 2018, the OECD issued 31 Economic Surveys of Australia – about one every 18 months. Each survey suggested policy reforms that the OECD believed would increase economic growth and living standards.

Our analysis of the full series of Surveys for Australia shows that the vast majority of the recommendations that had been made since 1972 were taken up between 1984 and 2001. The Hawke and Keating governments enacted almost all of the OECD’s rolling wish-list, as did the Howard government in its first two terms.

Policy recommendations from OECD Economic Surveys of Australia 1972-2018, by date


But from roughly 2003 onwards, the record is a lot more patchy: many more of the reforms recommended by the OECD have been rejected, only partially implemented, or, in the case of carbon pricing, implemented and then unwound. Policies that have run into the sand include reducing the gap between the company tax and top personal income tax rates, implementing a mining resource rent tax, reviewing negative gearing, creating competitive neutrality among Australian ports, aligning the eligibility ages for superannuation and the Age Pension, including more of the value of owner-occupied housing when calculating Age Pension eligibility, and raising Newstart. A number of other policy reforms continue to sit in the too-hard basket, such as increasing the rate and coverage of the GST, swapping stamp duties for general property taxes, congestion charging, and using smart meters for time-of-day retail electricity pricing.

Are the OECD Surveys a reliable guide?

As a means to evaluate the history of reform, the OECD Economic Surveys aren’t perfect. Their scope has changed, they are partly influenced by politics, and they recommend reforms that are invariably contested. Nevertheless, they are still a useful guide.

The format of OECD Surveys has changed over 46 years. Surveys before 1990 tended to be more passive, make fewer recommendations, and focus more on reforms that were already underway. Their scope tended to be limited to trade liberalisation, freeing up industrial relations, and limiting public expenditure. Consequently, their recommendations fall well short of a comprehensive summary of Australian economic policy reform.

Though the 1990s, the Surveys became more forward-looking, and they expanded to cover more areas. Towards the end of the Hawke and Keating governments, the OECD’s recommendations turned to broader tax reform, competition in utilities, and higher education reforms. During the Howard government, they started to advocate better regulation of the financial sector, health and welfare reforms, and market-based environmental reforms (particularly for water and carbon emissions). In the past few years they have expanded again to advocate better infrastructure provision and charging.

Policy recommendations from OECD Economic Surveys, by policy area

Nevertheless, even as proposed reforms expanded into new areas, the Hawke and Keating governments, and the Howard government in its first two terms, succeeded in implementing almost all of them. It appears that Australia’s better record of reform before 2003 is not just a result of the OECD’s changing scope.

OECD reports are partly influenced by political reality. In practice they are prepared after extensive consultation with officials, particularly from the Commonwealth Treasury. They are at least influenced by the priorities of the government of the day. It is hard, for example, to imagine that the OECD would have advocated abolishing awards under a federal Labor government – it advocated this change for the first time in 2006 when the Howard government was in power, and it has not done so again since Labor was elected in 2007. Similarly, it is probably no coincidence that since the Coalition was elected in 2013, the OECD has not again recommended a mining resource rent tax or limiting negative gearing.

Nevertheless, many reforms have transcended governments. Despite political influences, the OECD persistently advocated a number of reforms well before the government of the day was prepared to implement them. Many were first suggested by the OECD under one government, and implemented by the next, including increased competition in telecommunications, tightening eligibility for disability pensions, introducing case-mix funding for hospital systems, and introducing a general goods and services tax and carbon pricing.

And of course, OECD recommendations are not gospel – they tend to reflect a specific set of value judgements regarding priorities and methods. They perhaps had a higher status in public debate in the 1980s and 1990s and were more influential in shaping the thinking of other independent voices. Nevertheless, many policy experts today would support most of the OECD’s recommendations. For example, all of the policies that are on the OECD’s continuing wish-list also continue to be advocated by Grattan Institute.

Thus our review of the OECD Surveys is broadly consistent with popular wisdom, or at least the recollections of old men – the good old days really were better.

Co Authors :

Researcher, Grattan Institute

Our economic institutions are forecasting policy failure. Governments will have to spend up big to avoid it.

Australia is in for a long and damaging economic slump, unless governments inject substantially more fiscal stimulus.

The July budget update forecast that unemployment would hit 9.25 per cent in coming months. The Reserve Bank is forecasting unemployment to hit 10 per cent by Christmas. Treasury apparently expects unemployment to remain above 6 per cent for the next half-decade.

That would be a disastrously sluggish recovery – as slow as the recovery after the 1990s recession – widely seen now as a failure of macroeconomic policy.

It would be a slower recovery in unemployment than Australia experienced after the 1980s recession. It would also be substantially slower than the US experienced after the Global Financial Crisis, when unemployment fell from a peak of 10 per cent in 2009 to 5.7 per cent five years later.

The US after the GFC should be no one’s idea of a rapid labour market recovery. Yet that’s the scenario Australia is drifting towards.

The recovery is expected to take years

The Parliamentary Budget Office recently published new projections of the Australian economy’s potential – the level of economic activity we could achieve with full employment and no idle equipment. The figures published by the PBO suggest our potential output this financial year is around $1.96 trillion. The Reserve Bank’s latest forecasts anticipate us producing goods and services worth only around $1.82 trillion. The gap between our actual and potential output – the ‘output gap’ – is expected to be around $140 billion or 7.5 per cent.

It’s inevitable that we’ll have a large output gap this year – the second-largest state in the country has been in some form of lockdown for most of the financial year so far. But the really scary part is that the output gap could persist for more than half a decade. The PBO has followed the standard budget assumption that it will take seven years to return to potential — which would mean we won’t close the gap between actual and potential output until 2027-28. In total, the output gap over the period between now and mid-2027 is projected to be around $620 billion in inflation-adjusted terms.

This projection should shock. If it comes to pass, we’re in for the better part of a decade with the economy operating well below potential, with unemployment higher than it could be and living standards below where they could be.

Deep recessions leave ugly scars, but the worst can be avoided

A recession this long and deep would leave ugly scars. Recent work by officials at the Treasury found that when youth unemployment goes up by 5 percentage points – as it has in recent months — the wage that new graduates can expect to receive goes down by 8 percentage points, and they’re less likely to be employed in the first place. The effect on graduates’ wages lasts for years: over a decade they lose the equivalent of half a year’s salary compared to otherwise-equivalent young people who graduated into more benign economic conditions. A recent staff working paper from the Productivity Commission came to a similar conclusion – economic downturns have big and long-lasting effects, particularly on young people.

But the Treasury authors show that the worst effects can be avoided if unemployment falls quickly. For instance, if unemployment returned to pre-recession levels within three years, the hit to young workers’ wages over the decade would be halved.

Governments need to act

Faced with this scenario – a long and deep recession with sluggish recovery – policy makers should do everything in their power to stimulate the economy.

In normal times, Australians would look to Martin Place in Sydney, with the expectation that the Reserve Bank would deliver enough of a boost through monetary policy to get us out of the slump. But the Bank has cut its cash rate 0.5 percentage points and now finds itself at, or least close to, the lowest it can go. This is unlike past downturns – in the wake of the GFC, the RBA cut the cash rate by 4.25 percentage points. It cut by 2-2.5 per cent during earlier, much smaller, shocks – the Asian financial crisis and 2001 financial bubble. The RBA just hasn’t had the same room to move this time.

The RBA can and should do more, but it cannot do enough by itself. The Federal Government must step up.

The Government acted quickly and commendably to support households and businesses through the acute crisis period. The actions weren’t perfect, but they’ve helped turn what looked likely to be an unprecedented economic catastrophe into something more like a conventional terrible recession.

But the fiscal taps look set to be turned off in the coming months, as the emergency support is withdrawn. The fall off the ‘fiscal cliff’ might be cushioned a bit by the boost from households that have saved more during shutdown, and households that have withdrawn their super savings, but fiscal policy looks set to be a drag on growth.

More – much more – fiscal support is going to be needed over the months and years ahead.

In June, Grattan Institute called for additional fiscal stimulus of about $70-to-$90 billion over the next two years. Those numbers now look too small.

Based on the updated RBA forecasts, we now estimate additional stimulus of about $100-to-$120 billion is needed. This would be enough to cut the unemployment rate by about 2 percentage points relative to where it would otherwise be by the end of 2022. It would bring unemployment back down to around 5 per cent – around the level the RBA expects is needed to get wages growing again. And governments will need to spend more in the years beyond to keep it there.

Extra stimulus will mean extra government debt. But the Australian government can now borrow for 10 years at a fixed interest rate below 1 per cent. Adjusted for inflation, that’s a negative real interest rate, making debt more affordable than it has been in living memory.

There will naturally be concerns that further debt will place a burden on younger generations. But they are the generations that will wear the cost of high unemployment unless we act.

Australians should not settle for a prolonged slump, with all the scarring and misery it brings. Our leaders should prepare a plan now to get unemployment down as quickly as possible. The Reserve Bank and Treasury are forecasting economic policy failure. Australian governments should be prepared to spend, and spend big, to avoid it.

Note: this post was amended on 11 September to clarify the nature of the potential output figures published by the PBO. The PBO does not engage in economic forecasting. The potential output estimates published by the PBO used the government’s pre-COVID estimate of potential, adjusted for reduced migration.

Co Authors :

Explainer: the argument over personal income tax cuts

The debate around the Government’s personal income tax cuts is heating up, with further announcements expected in tomorrow’s Budget.

Many of the core arguments appear contradictory: most of the tax cuts benefit high-income earners, yet some people argue that high-income earners will end up paying a higher share of tax. Some argue the tax cuts are needed to support the economic recovery, while others argue they won’t be effective or could even hinder the recovery.

This piece explains the main points of contention and why sensible people can come to such different conclusions.

What could happen

Tomorrow’s tax cuts will be the government’s third attempt at a tax plan in as many years. The current plan has three stages:

  • Stage 1 has already begun and delivers temporary tax cuts to low-and-middle-income earners until mid 2022, via a Low and Middle Income Tax Offset (LMITO).
  • Stage 2 starts in July 2022, following directly on from Stage 1. It makes the Stage 1 benefits permanent and extends them to high-income earners too.
  • Stage 3 commences in July 2024 and makes further permanent changes to the tax rules, including abolishing the 37 cent bracket, and reducing the 32.5 per cent tax rate to 30 per cent.

These three stages are already legislated – so will come into effect as per this timeline unless Parliament passes new legislation.

The first point of debate is whether the tax cuts should be fast-tracked. The Prime Minister and Treasurer have all but confirmed they will be, which means Stage 2 or even Stage 3 could start next financial year or could even be back-dated to the current financial year.

If Stages 2 and 3 are brought forward, and Stage 1 is kept, most workers will receive a tax cut. But Stages 1 and 2 were not originally designed to run in parallel. Stage 1’s LMITO is scheduled to expire in July 2022, with Stage 2 designed as its replacement. If Stage 2 is fast-tracked, it is unclear whether the LMITO will end immediately, be scrapped in 2022 as currently legislated, or whether it will now become a permanent feature of the tax system. As Chart 1 shows, this makes a big difference to what kind of tax cut is on offer for low- and middle-income earners – but either way there’s a big tax cut for higher-income earners.

Do tax cuts make for good stimulus?

Economists widely agree that while tax cuts do provide stimulus, there are many better stimulus options available. Whether tax cuts provide ‘good’ stimulus depends on how low the bar is.

Tax cuts generally don’t provide as much economic kick as others forms of government stimulus, because some of the money leaks to savings. This is even more true in the current environment of heightened uncertainty, and because these tax cuts will largely benefit higher-income earners, who are more likely to save than lower-income earners.

In a recent Economic Society poll of the stimulus options preferred by 49 leading economists, only 20 per cent put income tax cuts in their top four.

The stimulus bar may be fairly low right now. Grattan Institute estimates that $100-to-120 billion in extra fiscal stimulus is required in the next couple of years to get unemployment down quickly and avoid a long recession. This means that even if these tax cuts are not the best option available, they could form part of a broad suite of options that collectively deliver sufficient stimulus.

But the danger is the scale of the cuts might leave the government less willing to spend big on other choices – such as social housing, permanently boosting JobSeeker, and investing in government services such as aged care, mental health, and childcare services – that would be most effective at creating jobs.

Who benefits from the tax cuts?

Even though the tax cuts can provide stimulus, many still object to them on fairness grounds, arguing that they disproportionately favour the well-off and will reduce the scope for the government to fund necessary increases in services in the future. But others claim that the cuts are merely ‘a radical plan to stay the same’ and that the share of tax paid by high-income earners actually falls. So, what’s really going on?

There is no question that fast-tracking Stages 2 and 3 delivers the biggest dollar cuts to high-income earners. The average tax cut next year for someone earning more than $180,000 would be more than $11,000. By contrast, someone on median income of about $48,000 could expect a tax cut of just over $1,000 if LMITO is kept and only about $100 otherwise.

But in a progressive tax system any tax cut will deliver a bigger dollar cut to people on higher incomes.

Another measure of the ‘fairness’ of the cuts is the change in share of tax paid by different groups.

Figures produced by Deloitte Access Economics suggest that the top 5 per cent of income earners will pay a slightly higher share of tax in 2025, even with the tax cuts, than they did in 2018-19. However, Deloitte estimates the share paid by the top 10 per cent and top 20 per cent will be lower.

Deloitte compares the full tax plan to no tax plan (unwinding existing tax cuts under Stage 1). This might have been an appropriate comparison when the tax package was first debated, but it doesn’t pinpoint the effect of possible changes in this Budget.

As Table 1 shows, our estimates of the share of tax paid by high-income groups in 2025 under the Stage 2 and Stage 3 tax cuts compared to today show that the top 5 per cent, 10 per cent, and 20 per cent will all pay a lower share of tax if the tax plan goes ahead.

Table 1: Stage 3 reduces the share of tax paid by the top 5%, 10%, and 20% compared to today

Share of total tax for groups of tax-filers FY21  FY25 Stage 2 only FY25 full plan
Top 5% 38.5% 37.8% 37.5%
Top 10% 52.0% 50.7% 50.0%
Top 20% 69.5% 68.0% 67.3%

Table notes: The 2024-25 scenarios do not include LMITO because LMITO is currently scheduled to expire in 2022-23. Top 1% not shown because results are unreliable in a 2% sample file.

A better way to look at who benefits from the cuts is to look at how it changes average tax rates across the income distribution.

Chart 2 shows that compared to today (black line), Stages 2 and 3 would reduce average tax rates mainly for higher-income earners. But keeping LMITO (dotted lines) means that tax rates come down for low-and-middle-income earners as well.

Tax-filers around the 90th percentile (that is, people earning about $120,000 year) would get the biggest reductions in their average tax rates – from 29 per cent to 25 per cent – if Stages 2 and 3 are brought forward. By contrast someone on $50,000 could expect a 2 percentage point fall in their average tax rate if LMITO is kept – and only about 0.2 percentage points less without LMITO.

The key thing to look for regarding tax cuts in tomorrow’s Budget is whether LMITO is continued, and for how long. Those decisions will have the biggest impact on both the fairness of the tax system and the effectiveness of these tax cuts as stimulus.

Understanding the impact of tax cuts on the progressivity of the system is complex. Budget Papers have historically focussed on the dollar tax cuts and the impact on share of tax paid for high-income groups. But it’s worth remembering these provide only part of the picture. Looking at average tax rates across the distribution, or progressivity indexes such as the Reynolds-Smolensky Index, give a much better picture of how tax cuts change the system. But we will probably have to wait beyond budget night to see them.

Co Authors :

Is Labor’s childcare policy welfare for the well-off?

Lots of families are celebrating federal Labor’s plan to make childcare cheaper. But some commentators are concerned that the policy delivers big benefits to the well-off – questioning whether ‘cost of living relief’ is appropriate for these families.

But it’s wrong to think of Labor’s policy – to increase the maximum Child Care Subsidy from 85 per cent to 90 per cent, slow down the rate at which the subsidy tapers off, and remove the annual cap – as middle class welfare.

It’s economic reform, not welfare

As veteran commentator John Durie points out: “When a politician spends billions on building roads everyone nods and ticks the box but if that same money is spent on childcare subsidies, some question its merit and call it middle class welfare.”

Early education and care has benefits for children. But it is also a cost associated with working. Parents need childcare in order to be able to work.

Normally, costs associated with doing your job count as tax deductions. But the system is not set up this way for childcare (for good reasons, see this post). Instead we have a Child Care Subsidy, which provides a high subsidy for low-income earners (currently an 85 per cent subsidy for families with combined income of $69,000 or less). The subsidy then reduces quite steeply for every extra dollar earnt.

This steep taper is the source of a lot of ‘workforce disincentives’ – as is the annual cap on the total amount families can claim. Labor’s policy is an economic reform because it flattens the taper rate and removes the annual cap, encouraging parents to work more and earn more. Under the current system, the incentive to work is weak or non-existent for single parents and ‘second earners’ in a couple (usually women), particularly if they want to work more than three days a week.

We estimate that Labor’s plan would increase hours worked by second earners by 11 per cent, and this higher participation would boost GDP by more than double the additional cost.

Who benefits?

Labor’s policy boosts the childcare subsidy right across the income spectrum, as Chart 1 shows. Middle- and higher-income families who are currently subject to the annual cap would get the greatest gains. But total childcare support would still be much greater for low-income families than for middle- and higher-income families.

Table 1 compares the benefits for three example families under the current system compared to under Labor’s policy.

Family situation Current policy Labor’s policy
Subsidy WDR Subsidy WDR
Both parents would earn $60k if working full-time; one works full-time, the other part-time (4 days) 73% ($33k) 102% 84% ($39k) 83%
Both parents would earn $80k if working full-time; one works full-time, the other part-time (4 days) 61% ($28k) 83% 77% ($35k) 63%
Both parents would earn $100k if working full-time; one works full-time, the other part-time (4 days) 50% ($23k) 107% 70% ($32k) 68%

Notes: WDR = Workforce disincentive rate, which is the proportion of every extra dollar earned by the second earner that is lost to tax, net childcare costs, and benefit clawback. Subsidies shown are for the 2022-23 financial year.

The benefits for low-income families come through raising the maximum subsidy to 90 per cent. The benefits for middle- and high-income families come through flattening the taper rate and removing the annual cap.

You can’t fix the workforce disincentives without generating additional benefits for higher-income families. If you are outraged that the top marginal tax rate is 45 per cent, then you should be doubly outraged by the workforce disincentives facing single parents and second earners – of at least 80 per cent and sometimes more than 100 per cent (yes, that means they are paying for the privilege of working).

Some commentators have highlighted the benefits for rich families earning more than $350,000. A family earning $360,000 is at present not eligible for any childcare subsidy. This is because the current system has a ‘cliff’ at $354,000, which creates a very strong disincentive to work for families close to the cliff. Under Labor’s plan that family would be eligible for a 34 per cent subsidy, because the taper continues to do its work, meaning that the subsidy continues to reduce as family income increases.

The benefits flowing to families with combined income higher than $350,000 represent only 6 per cent of the new benefits and less than 2 per cent of the total subsidy paid under the policy, because very few families (4 per cent) earn this much. About 80 per cent of families have combined income of $200,000 or less, and these families will receive about 75 per cent of the new benefits and 80 per cent of the total benefits, as Chart 2 shows.

It makes little economic sense to lock-in very high workforce disincentives to avoid giving money to a small number of well-off families.

Won’t childcare centres just raise their prices?

Labor’s plan boosts the subsidy and removes the annual cap. But there has been some confusion about what ‘removing the cap’ means, because there are two caps in the current system. One journalist has observed that: “Wealthy parents in exclusive suburbs can pay $200 a day or more at private centres offering yoga and organic meals… Why should taxpayers subsidise 90 per cent of the cost of boutique childcare in Sydney’s eastern suburbs?”

Labor plans to remove the annual cap (which limits how much families can claim in total), not the hourly rate cap (which provides a benchmark price for childcare providers to discourage them from charging above that rate).

This is a critical distinction because the hourly rate cap – introduced by the Coalition Government as part of its 2018 childcare reforms – plays an important role in containing fee rises. It represents the maximum amount the government will subsidise for each hour of care. This provides ‘a guide to providers and families about what a high fee might be’ and discourages providers from charging above that fee.

‘Boutique’ childcare centres still exist, but they are far from the norm. Only about 12 per cent of providers charge fees above the hourly rate cap, and parents who choose to use those services pay much higher out-of-pocket costs.

Even under a 90 per cent universal childcare scheme – which Labor says it plans to investigate – the hourly rate cap would be very likely to stay.

Labor’s plan to make childcare more affordable is an important economic reform for these times. It builds constructively on the Coalition’s 2018 reforms to improve women’s workforce participation. With bipartisan support it could support the economic recovery too.

Co Authors :

When do I get my tax cut? It’s complicated

When do I get my tax cut? It’s should be a simple question following last week’s federal Budget, but the answer is complicated.

What’s actually changed in this Budget?

In the last week we’ve heard a lot about ‘Stage 2’ of the Government’s three-stage tax plan. Stage 2 was originally supposed to start in 2022. Now it’s been brought forward.

But what’s easy to miss is that Stage 2 doesn’t actually cut taxes for anyone on less than $90,000 a year. For this (very large) group of Australians, it just swaps out one type of tax cut (an offset called the LMITO, the Low- and Middle-Income Tax Offset, from Stage 1) with another (a different offset, plus a bracket shift). The two stages are almost exactly identical for people in this income range.

That might seem like a pointless exercise, but the Government’s stated aim was to make the tax system ‘simpler’, rather than leaving it cluttered with a bunch of different offsets.

This means that if the Government had just brought forward Stage 2 and done nothing else, the result would have been no tax cut for most people. Instead, the Government decided to keep the LMITO alongside the new changes for one year. So instead of replacing Stage 1, Stage 2 now augments it for one year only. The benefit from both stages at once is double what it would otherwise have been this year for those who earn less than $90,000.

The Government describes this as ‘an extra LMITO’. That makes it sound like LMITO is the thing that’s new. But it’s not: the thing that didn’t happen last year but will happen this year is the Stage 2 cut.

Why does that matter if they’re identical? Because they are not identical in timing. Offsets get paid out at tax time in July. Threshold changes – which are one component of Stage 2 – are reflected in fortnightly pay checks.

So, when do I get my tax cut?

To answer this question, we need to examine the Stage 2 changes, which are a combination of threshold changes and a change to another offset – the LITO (Low Income Tax Offset):

  1. LITO increases from $445 to $700. This tapers out faster than before so that nobody earning above $45,000 gets any of the extra bit.
  2. The top threshold of the 19 per cent tax bracket moves from $37,000 to $45,000.
  3. The top threshold of the 32.5 per cent tax bracket moves from $90,000 to $120,000.

The first change – LITO – gives $255 to anyone on less than $37,000. Since LITO is paid at tax time, these people (40 per cent of tax-filers) get nothing new until July next year.

The second change – the 19 per cent threshold – gives $1,080 to everyone who earns more than $45,000. Since it’s a threshold change, it will start reaching these people (50 per cent of tax-filers) in their fortnightly pay packets as soon as the ATO is able to make the necessary adjustments.[1]

If you earn between $37,000 and $45,000 (10 per cent of tax-filers), the answer is mixed: for each extra dollar you earn in this range, you’re getting a little less LITO and a little more threshold change – so a little less next July and a little more now.

The third change – the 32.5 per cent threshold – gives up to an extra $1,350 to the top 20 per cent of tax-filers and will also reach pay packets soon.

The results are summarised in the table below:

As for LMITO – which we were already expecting to receive this year – it is dispensed at tax time. That means it won’t reach anyone for at least nine months. And if we take Stage 1 and Stage 2 as a package – as the Government would like us to – then the bottom 80 per cent of tax-filers will get less than half their tax cut in their pay packet.

[1] Reports suggest this could be as soon as December, although it’s not yet clear whether the months prior to this will be made up at the end of the year, or if fortnightly pay packets will be tweaked to make up for lost time.


Tracking Victoria’s COVID response

The daily announcement of new COVID cases has become part of the rhythm of life for Victorians. It can be an unsettling announcement, especially over the past fortnight as a ‘stubborn tail’ casts doubt over the state’s ability to ease restrictions as soon as hoped.

The headline number attracts a lot of attention, as do the 14-day moving average and the 14-day ‘mystery case’ total, since these are the metrics used in the State Government’s roadmap to a ‘COVID normal’. But they are not the only useful numbers to keep an eye on. When the total caseload is so small, it is also useful to distinguish between cases from a known source, cases which are successfully traced, and cases which remain a mystery. These provide a perspective on contact tracing efforts.

This information is provided in daily media releases and in statements and tweets by the Victorian Chief Health Officer. The chart above presents it in a simple visual form.

The chart makes a few things apparent. First, there have been 10 or fewer cases requiring investigation each day in the past fortnight. Second, most of those investigations have been successful: about 90 per cent of cases have been traced. Third, there is still a small but significant number of mystery cases. These cases indicate gaps in our knowledge about where the virus has spread, and those gaps are riskier the fewer restrictions are in place.

No single metric should be taken as the perfect measure of progress. Monitoring the types of cases, not just the total number, offers a more vivid picture of the trends that will shape the coming weeks and months.

Co Authors :

New data a reminder that high childcare costs continue to bite in Australia

Tomorrow’s Consumer Price Index figures will put childcare costs back in the headlines. The ABS estimates the rise in childcare prices will add a sizeable 0.3 percentage points to the overall increase in the CPI in the December quarter.

The increase is mainly triggered by costs and attendance bouncing back from the lows during the COVID shutdowns, but it serves as a useful reminder that high childcare costs are hurting Australian families.

What do families pay for care?

Childcare spending varies a lot, depending on the amount of care a family uses, the number of children they have in care, the hourly or daily rate charged by the provider, and the amount of government subsidy the family qualifies for (this depends on family income, because the Child Care Subsidy is means-tested).

Long-day care centres – used by most families with children in formal care – charge about $105 on average for a 10-hour day.  About 14 per cent of families pay more than the hourly rate cap (which translates to about $110-to-$120 per day).

At the rate cap, the total cost of full-time care is more than $28,000 per year per child.

The government provides a subsidy to help defray these costs. The subsidy ranges from 85 per cent for households with incomes up to about $70,000, to 20 per cent for households earning about $350,000. Households with incomes of more than $353,680 receive no subsidy.

The government stresses that after the subsidy, 70 per cent of families have out-of-pocket costs of less than $5 per hour per child for centre-based care.

But don’t let the reasonable sounding per hour costs fool you (can you remember the last time a government sold its tax cuts in hourly terms?!). $5 an hour translates to about $50 a day, $250 a week, or $13,000 a year for each child in full-time care. This is more than the cost of sending the child to an exclusive primary school, and beyond the reach of many Australian families.

These high costs are a problem

Some members of Parliament say the cost of childcare doesn’t come up much in constituent feedback. This doesn’t mean the concern isn’t real; it probably reflects the fact that only a small proportion of the electorate is paying these costs at any given time. We also suspect that many working parents are too busy to stop for a chat with, or respond to a survey from, their local MP.

National surveys of parents with young children present a more accurate picture of the difficulties and consequences of high out-of-pocket childcare costs.

The 2017 HILDA (Household, Income and Labour Dynamics in Australia) survey found that 49 per cent of people with children under 5 had difficulties with the cost of childcare, up from about one-third in 2002.

And many other surveys highlight the impact of high costs on labour force participation, particularly for women:

  • In the 2017-18 ABS Survey of Income and Housing, about 30 per cent of mothers who have pre-teenage children and would prefer to work more nominated childcare cost as the main factor preventing them from doing so.
  • The 2019 ABS Participation, Job Search and Mobility survey found that the most common childcare-related reason for not being in the labour force was the cost of childcare (28 per cent).
  • A survey conducted by The Parenthood in June 2020 found that 66 per cent of parents reported the out-of-pocket costs of childcare before COVID were too expensive, and 76 per cent said the cost of childcare was too high for either them or their partner to work full time.

These results are no surprise: Grattan Institute’s analysis of the disincentives to work generated from the interaction of high childcare costs, tax, and welfare clawback shows that for many women with young children, working more than three days a week provides little or no financial benefit.

Making childcare more affordable is one of the single best things the Federal Government could do to boost workforce participation and help the COVID recovery. Chapter 5 of Grattan’s Cheaper Childcare report lays out a number of options to reduce the out-of-pocket costs of care. But the first step to finding a solution is admitting you have a problem.

Co Authors :

The JobSeeker rise is not enough

Australians on unemployment benefits will receive an extra $25 a week under changes to JobSeeker from April, but the payment will still be substantially below the poverty line.

JobSeeker, formerly known as Newstart, usually only rises in line with the cost of living. Other than small adjustments– such as at the time the GST was introduced in 2000 — this will be the first time the benefit has been increased in real terms since the early 1990s.

But for people currently on JobSeeker, it will feel like a cut, not a rise. That’s because since COVID-19 arrived in Australia, unemployed people have been receiving the Coronavirus Supplement. The supplement at first was worth $275 a week on top of the basic JobKeeper, then in September 2020 it was cut back to $125, and now it’s $75 per week. People on JobSeeker on 1 April will therefore get a $50 per week cut in their payments, as the $75 Coronavirus Supplement is removed and the new $25 increase is added.

Jobseeker is well below the poverty line

Even with today’s announcement, JobSeeker will remain well below usual measures of the poverty line.

Australia doesn’t have an official poverty line, but we have at least two measures commonly used by researchers — the relative line, which is half of median household income, and the Henderson line, which was set by an inquiry in the 1970s and is updated by the Melbourne Institute. The relative line is used most often, including by international organisations like the OECD.

The relative poverty line is $450 per week — or at least it was back in 2018 when the latest data were released. That means a single adult, living alone, would need at least that amount to be considered out of poverty. After the $25 increase announced today, JobSeeker (including the Energy Supplement) will be $312 per week — $138 below the relative poverty line. The gap between the payment and the Henderson poverty line is even bigger.

The gap wasn’t always so big. As Chart 1 shows, back in the early years of the Howard Government, the unemployment benefit was nearly at the relative poverty line.

By the time John Howard left office in 2007, the Newstart Allowance was  $214.90 per week. The minimum wage for a full-time worker was $522.12 per week, so the unemployment benefit was worth 41 per cent of the minimum wage.

Since then, the minimum wage has grown a little faster than inflation, while Newstart/JobSeeker has only kept pace with inflation. As a result, the gap between the unemployment benefit and the minimum wage has widened.

Today’s announcement of an extra $25 per week in JobSeeker puts the payment right back where it was in 2007 — 41 per cent of the minimum wage.

But the increase isn’t enough to restore the unemployment benefit to where it was earlier in Howard’s term. In 2000, when the Howard Government introduced the GST, the unemployment benefit was 43 per cent of the minimum wage — today’s increase will leave it well below that mark.

And today’s announcement barely puts a dent in the large and growing gap between payments to unemployment people and payments to pensioners. Back in 2000, Newstart was worth 89 per cent of the single pension; after the $25 increase, it will be worth just 66 per cent of the pension.

JobSeeker will still be the second-stingiest unemployment benefit among OECD countries

Even after today’s announcement Australia will have the second-stingiest payment for newly-unemployed people out of all 37 members of the OECD, behind only Greece.

An Australian on an average wage who loses their job will find that JobSeeker and Commonwealth Rent Assistance combined add up to only a bit more than a quarter – 27 per cent – of what they earned when they were working. An unemployed Canadian would get 62 per cent of the average wage. The average across the rich countries is 58 per cent, about double Australia’s new payment.

JobSeeker will still be benchmarked in inflation, not wages

The reason JobSeeker got so low in the first place is because allowance payments such as JobSeeker (but also Youth Allowance) are adjusted only in line with changes in the cost of living, as measured by the Consumer Price Index (CPI). This means that a person on the unemployment benefit falls further and further behind other Australians, including pensioners. Today’s announcement does nothing to fix that problem.

Now is an especially bad time to cut the Coronavirus Supplement

In his announcement today, Prime Minister Scott Morrison said he was concerned that leaving the current JobSeeker rate in place (including the Coronavirus Supplement) would dull job seekers’ incentives to search for work.

Yet there is little evidence that the current level creates a big disincentive to work: even after the JobSeeker rate was doubled last year, there was little change in the proportion of unemployed Australians who found work each month, or in the rate of advertised job vacancies.

After all, searching for jobs takes time and costs money. Set the rate too low and unemployment Australians will struggle to afford to search for work, a concern noted recently by the OECD among many others.

We already require unemployed people to jump through lots of hoops – applying for jobs, doing ‘mutual obligation’ – that make JobSeeker far from a comfortable existence. And today’s announcement includes measures to further tighten those requirements.

Lowering the overall level of unemployment benefits that jobseekers will receive in the middle of a recession is likely to cost jobs, rather than create them. Australia’s economy has made a stronger-than-expected recovery from COVID so far. But, as the Governor of the Reserve Bank recently noted, ‘we still have a fair way to go’. Unemployment remains high at 6.4 per cent. On current forecasts, it won’t return to pre-crisis levels until at least 2023. Even lower unemployment will be needed to get real wages moving again.

JobSeeker is one of the best forms of fiscal stimulus there is: since people are unemployed, they’re likely to spend most of what they receive. Cutting the $75 a week Coronavirus supplement, and replacing it with a lower but permanent $25 a week rise, is a missed opportunity. It is likely to cost jobs, and it means unemployed Australians will continue to languish well below the poverty line.

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Why the JobSeeker ‘rise’ could actually cost 40,000 Australians their jobs

The permanent rate of JobSeeker will rise by $25 a week from April. But the $75 a week Coronavirus Supplement to JobSeeker will be abolished at the same time. So people on JobSeeker on 1 April will actually get a $50 per week cut in their payments.

Cutting unemployment benefits in the middle of a recession is likely to cost jobs, rather than create them.

There’s little evidence that retaining the Coronavirus Supplement would hurt employment

There’s little doubt that a very big increase in the long-term unemployment benefit would discourage some people from trying to get a job. But there is little evidence that Australia is approaching that level – even if we kept the Coronavirus Supplement.

After the 1 April ‘rise’, the new permanent rate of JobSeeker will be equivalent to just 41 per cent of the full-time minimum wage. Even if the $75 a week Coronavirus Supplement stayed, the payment would only be about half the full-time minimum wage – hardly a meaningful disincentive to searching for work.

Cutting JobSeeker is likely to cost jobs rather than create them

JobSeeker is one of the best forms of fiscal stimulus there is: unemployed people are likely to spend all or at least most of what they receive. In January this year 80 per cent of people receiving the Coronavirus Supplement said they were spending it on household bills and supplies, including groceries. That’s money in the pockets of Australian businesses, big and small.

Cutting unemployment benefits by $50 a week will take about $5 billion out of the economy in the coming year. That’s likely to push the unemployment rate 0.1-to-0.15 per cent higher than if the current $75 a week supplement were kept. And that means up to 40,000 fewer jobs.

If the Federal Government really wants to get more Australians working, it should think again.

The vaccine rollout – going well according to which plan?

The increasingly strident and wide-spread criticism of the COVID-19 vaccine rollout is a problem of the Commonwealth Government’s own making.

During 2020, Australians came to believe that the public health strategies – lockdowns and restrictions, testing, tracing, and isolation – were interim until the vaccine arrived. They came to believe that because the Government encouraged them to do so.

From August, the Government has celebrated every minor milestone in the vaccination journey, contributing to the expectation that vaccines would be the game changer. Unlike other countries, the coronavirus is not circulating in the Australian community so it was appropriate to defer the vaccination rollout to help ensure it went smoothly, but this was a hard sell to the community

The first vaccinations were given with much hype and nationalistic symbols, and the public expectations were heightened. And then the wheels fell off the bus.

To be sure, some of the problems were due to the nasty Europeans reneging on some vaccine delivery promises – a risk that could and should have been foreseen by Australian officials. But others failures in Australia’s vaccine rollout were due to failures in the local supply chain.

The target for the number of Australians to have received their first vaccination by the end of March was revised down, from 4 million to 2 million, to take account of the international supply chain problems. But only about a third of that was actually delivered.

Back in mid-February the Government said 500,000 aged care residents and staff would be vaccinated ‘in the coming weeks’, with so far only one fifth of that target met.

Australians were told that CSL would produce 1 million doses a week in Australia, but so far it is falling well short of that, although how far short seems to be a state secret.

Yet an increasingly sceptical public keeps being assured everything is going according to plan.

The truth is that there is currently a huge gap between the Government’s vaccination promises and its vaccination delivery. Both elements of that need to be addressed. Delivery needs to be improved – including through mass vaccination centres – but community expectations also need to be re-calibrated.

If the rollout is going according to plan, then 600,000 doses by the end of March must have been the secret target, not 2 million. Perhaps the Government could tell us. And the issue now is what should be the target for end of May, end of June, and so on. What proportion of the so-called Phase 1 population – quarantine and border workers, healthcare workers, aged care and disability care staff and residents, people aged 70 or older, Aboriginal and Torres Strait Islanders aged 55 or older, adults with an underlying medical condition or significant disability – will be vaccinated by when?

The Government needs to be clear about what its plan is, taking into account both the local and international supply chains, and the capacity of local delivery channels.

The Government should publish a realistic vaccine rollout plan to which it is prepared to be held to account, and to publish progress against that plan – including doses produced, doses acquired, and people vaccinated. And it should publish that information each week.

It is time for the Commonwealth Government to level with Australians, so we can better understand what the plan is and whether everything really is going to plan.

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