What is it
In the midst of the fallout from the effects of Coronavirus to Australia’s economy, the government has announced a gargantuan $130B ‘wage-subsidy’ they’re calling the JobKeeper supplement. An expected six million eligible applicants (44.6% of the working age population), will receive $750 a week (pre-tax) to support them for 6 months.
What is it intended to do?
At face value this sounds great, free money! But hold on a minute, when (and why) did the government get so generous, considering that the Newstart allowance for the unemployed ‘pre-Corona’ was a mere 37% of this figure ($277.85 a week)?
If the government recognises that people can live on $277.85 a week (pesky dole bludgers!), then what is the additional $472.15 supposed to support considering expenses should be lower if we’re all locked in our homes? As is often the case with government, there’s some smoke and mirrors involved. Australia has the 2nd highest debt-to-GDP ratio in the world due to exorbitant house prices, and the government knows that now and in coming years, those prices are incredibly vulnerable to mortgage defaults as people lose their jobs. The $472 increment (which I’m referring to as the debt subsidy) is the government subsidising the country’s at-risk debts, chiefly in the mortgage market. Why are they doing this? They know that if mortgage defaults go up, house prices will correct (to a sustainable level) and subsequently the big banks (whose primary source of income is entirely dependent on high house prices) would take a hit.
Not convinced? Well, if you need evidence, why not take it straight from the horse’s mouth in the form of the Assistant Treasurer accidentally referring to the subsidy being there to support the ‘housing crisis’ before quickly correcting himself that it is, of course, a health crisis (Oops!).
If you really still believe that the government and the banks are being totally honest with you through this crisis, ask yourself why the banks would tell you unemployment should only rise to 11% right up until the government announced a subsidy where it publicly stated 6 million people will be beneficiaries (~45% of the working population). The simplest explanation for a discrepancy of this magnitude is that, before the subsidy was announced the banks’ incentives were such that they needed to calm the masses and avoid a rush to sell houses, whereas now, they’re protected.
In the space of a week, we’ve learned that the government’s political ideology depends chiefly on what segment of society is at risk as opposed to any solid ethical or moral grounding. And with that, lets have a look at who the real winners and losers from the subsidy are.
Who are the winners?
The banks. Since the banks’ incomes are directly proportional to house prices, this subsidy will help them to maintain their bloated profits for many years to come. Hurrah!
Anyone with a stake in housing. If you’ve got a mortgage or you own houses, then congratulations! The risk you took when you bought this asset has now been socialised across the entire country and our future generations via the debt subsidy. There is little doubt that you will still lose some of your asset value from the fallout when this is all over, but the debt subsidy will stem the bleeding considerably. Even then, you aren’t really a big loser since you’d be able to buy/sell in the same market down the line.
Who are the losers?
Renters. Despite what the government is telling you, the truth is that this isn’t really about supporting you.. Sure, renters are going to get a little slice of the pie in the meantime to placate them, but it all amounts to pennies on the dollar for you in the long run. Consider this, if the debt subsidy succeeds at restricting house price falls to 20%, when they may have otherwise been 35% under a subsidy consistent with past welfare payments, a pre-Corona $1M home will end up being $150,000 more expensive for you to buy. Considering that current owners & mortgage holders are on the receiving end of that $150,000 in addition to the same subsidy, you’re the shmuck in all of this.
Your children (and their children). Unfortunately, our future generations are even bigger losers from this, since they will bear the cost of not only the artificially inflated house prices for when they want to buy, but also an absolutely enormous (and mostly unnecessary) sovereign debt bomb that will need to be repaid via sizeable taxes. Is it fair that they bear a heavier burden from Coronavirus than we do? I don’t think so.
What would have been fair?
A subsidy consistent with what the government has previously stated is enough to live on (the Newstart allowance) would have been a fair, adequate, and ideologically consistent wage subsidy to offer. Those with children and other dependents should of-course also qualify for additional relief — in a country as well off as Australia, no one should be forced to go hungry due to this crisis.
Of course, under this subsidy, we would have seen considerably more economic hardship to mortgage holders in the short-term as people lost their homes to the crisis, which is sad, however very necessary in order to correct the overheated housing market to a fair and sustainable state.
Full disclaimer — I don’t own property and I believe(d) in capitalism. I guess I’m a dying breed.
