Category Economic Growth

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 :

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

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 :

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 :