When Josh Frydenberg gives his much anticipated budget speech on Tuesday he’s unlikely to dwell on the rate of poverty. It’s not a topic Treasurers talk about much, even though about one in eight Australians lives below the poverty line.
The word poverty hasn’t been uttered once in the past five federal budget speeches. But something unusual, and important, has happened to Australia’s poverty rate on Frydenberg’s watch.
The government’s giant income support programs – JobKeeper, the JobSeeker coronavirus supplement and $750 one-off payments to social security recipients – dramatically reduced financial hardship.
Modelling by the Australian National University’s centre for social research and methods shows these special payments introduced to combat the economic effects of the pandemic slashed Australia’s poverty rate from 14 per cent before COVID-19 to 11 per cent in June.
Associate Professor Ben Phillips, who led the study, says it’s very abnormal for the poverty rate to shift so much in such a short period.
“Poverty was reduced enormously, which is quite an achievement,” Phillips said. “I’d say it’s the biggest drop in poverty that we’ve ever seen and ironically that happened during a recession.”
Before the pandemic, about 67 per cent of people on JobSeeker lived below the poverty line, but that has now shrunk to just 7 per cent.
However, the connection between poor Australians and the economic response to the pandemic runs deeper. Low-income earners have helped to shield us from a much more damaging downturn.
A spending tracker developed by analytics firm AlphaBeta and credit bureau illion shows those who received government income support increased their purchasing when the economy was on the precipice. In contrast, those on higher incomes tightened their belts and added to savings.
The higher purchasing by poorer Australians was especially important during the national lockdown in April and May, when spending by those receiving no government support collapsed.
In early April discretionary purchases by those earning more than $104,000 a year were almost 40 per cent lower than the pre-COVID-19 norm. But spending by those earning less than $65,000 rose strongly from the time that stimulus payments began in late March and has remained well above the pre-pandemic norm ever since.
Even in late September, six months after the crisis began, weekly purchases by those who received the JobSeeker coronavirus supplement and one-off $750 support payments were still 27 per cent higher than pre-pandemic levels.
Spending patterns in Australia during the pandemic have underscored the value of targeting government stimulus payments to lower income earners because they are most likely to boost economic activity by spending the money, rather than saving it.
AlphaBeta director Andrew Charlton, who was economic adviser to prime minister Kevin Rudd during the global financial crisis in 2008, says the spending data shows low-income earners have been “carrying the Australian economy on their back” for much of the crisis.
But now the government says the special stimulus payments have done their job and need to be scaled back.
“We have to work ourselves off these supports because they’re not enduring,” Prime Minister Scott Morrison said in July.
But the consequences for poverty in Australia are far-reaching. Hundreds of thousands of low-income earners, who did so much to support the economy through the worst of the COVID-19 crisis, will now be pushed back below the poverty line.
The ANU modelling shows that reductions to JobKeeper and the JobSeeker supplement from late September will push Australia’s poverty rate to almost 16 per cent – considerably higher than before the coronavirus outbreak. One reason for the rise in the poverty rate is the recent growth in unemployed people relying on JobSeeker. While that payment is still higher than before COVID-19, it won’t be enough to prevent many falling below the poverty line.
Some outer suburbs of Sydney and Melbourne will be hit hard because of their relatively high rates of unemployment. Eight of the 10 districts projected to have the biggest jump in poverty rates following cuts to the JobKeeper and JobSeeker payments are in western Sydney. The average disposable income in the Tullamarine-Broadmeadows district of Melbourne will tumble by 11.4 per cent, one of the biggest declines in Australia.
“From October onwards many areas will have a higher level of poverty than what they have ever had in the past,” Phillips says.
The future rate of poverty in Australia will depend a lot on what happens to the JobSeeker payment. Late last month the $550-a-fortnight coronavirus supplement, which goes to those on JobSeeker and some other welfare payments, fell to $250 a fortnight. That reduced the effective rate of JobSeeker from $1100 a fortnight to $815.
The government has only committed to paying the coronavirus supplement until December 31, although in July Morrison signalled “further announcements” about JobSeeker, possibly in Tuesday’s budget.
Phillips says a return to the pre-COVID-19 JobSeeker rate of just $565 a fortnight would trigger a spike in the poverty rate because so many people are now unemployed.
At the moment Josh Frydenberg can claim to be the Treasurer who pushed poverty in Australia to an historic low. But unless he can find a way to be more generous to those on JobSeeker, poverty in Australia looks destined to soar to an unprecedented high.
Source: Thanks smh.com