After a rollercoaster 2020, Australia’s economy is showing signs of recovery
The rollercoaster of 2020 saw South Australians this week go through the harshest and, as it happens, briefest COVID lockdown yet.
The details are hard to keep up with, but in the space of a few days, authorities believed they had struck a new strain of the virus, spreading so fast even pizza deliveries were a risk. The entire state was shut down. Even a jog around the block was banned.
Two days later, it emerged someone had lied to contact tracers. The virus wasn’t being transmitted through pizza deliveries after all, and restrictions were unwound.
The whole episode was a reminder of the uncertainty that still exists around how this virus behaves, the difficulty faced by authorities trying to make snap decisions on the information before them and the completely unsynchronised approach of each state and territory scrambling to keep the pandemic outside their borders at all costs.
This year has already been trying, painful and unpredictable — and it ain’t over yet.
So, after acknowledging all the uncertainty that abounds, it seems fair to highlight some good news. The national economy is recovering. There is a very long way to go, but the signs over the past week are positive, most notably on the jobs front.
High hopes for the unemployment rate
Thursday’s official figures confirmed unemployment has now crept up to 7 per cent, but the better measure (as it has been since this crisis began) is the “effective” jobless rate. This includes those on JobKeeper who are unable to do much or any work.
This “effective” unemployment rate fell from 9.3 per cent to 7.4 per cent last month, a much better result than the Government was expecting. There are now hopes unemployment won’t climb as high as Treasury forecasts in the Budget, although no one is brave enough to publicly call it just yet.
The better news on the jobs front can largely be put down to the re-opening of Victoria and the restoration of confidence there. After enduring Australia’s longest lockdown, Victoria has now achieved an extraordinary three weeks with no new cases.
Incidentally, Premier Dan Andrews’s approval rating has shot back up from 54 per cent a month ago to 65 per cent now, according to an Essential poll. For all the anger directed from some towards the Premier, it seems voters are quite content with his performance.
The economic recovery gives the Morrison Government breathing room now to think beyond emergency measures and consider more lasting reforms. Its efforts to date in rolling out JobKeeper, JobSeeker, JobTrainer and JobMaker have been important (despite the silly names), however shovelling out tens of billions of dollars through these programs hasn’t required much political capital to be spent.
Over the coming months we’ll see whether the Government has the stomach for structural reforms that last beyond this crisis.
The long-awaited review of retirement incomes
On Friday, the Government dipped its toe into the tricky issue of superannuation reform, with the release of a long-awaited review of retirement incomes. The review, chaired by former Treasury official Mike Callaghan, makes no firm recommendations, but presents some important findings.
Employers currently pay 9.5 per cent of workers’ ordinary earnings into their super fund. That’s scheduled to rise to 10 per cent in July and then eventually reach 12 per cent in 2025.
Some employers argue they can’t afford it and won’t be able to lift wages if the super increase does go ahead. A sizeable cohort of the Liberal backbench agrees. Even Reserve Bank Governor Philip Lowe has said increasing the super guarantee would “certainly have a negative effect on wages growth”.
According to the Callaghan review, keeping the super guarantee rate at 9.5 per cent would “lead to lower superannuation balances at all income levels” than going to 12 per cent, but this would “allow people to have higher incomes during their working life while still being able to maintain their living standards in retirement”.
On balance, the review says if people made “more efficient use of their retirement savings” many would be better off with a 9.5 per cent than a 12 per cent contribution.
So how does Callaghan suggest we use retirement savings more “efficiently”?
Some tinkering on drawdown rates and superannuation fees is suggested, but the real game-changer is “accessing equity in the home”. Again, the review side-steps a clear recommendation, but says including the family home in the assets test for the Age Pension would mean “home owners would be self-funding their retirement income to a greater extent than possible”.
This, it delicately notes, would be a “more optimal” system.
Itching for a fight
Reading between the lines, this review seems to suggest the best bang for retirement bucks could involve a trade-off. Keep the super guarantee at 9.5 per cent and include the home when assessing eligibility for the Age Pension.
The Prime Minister and Treasurer haven’t made a decision on any of this and won’t until the May Budget. They could halt super contributions at 9.5 per cent or 10 per cent or they could opt to push back the increases by some years.
Any change will require legislation and the support of both Pauline Hanson and Stirling Griff on the Senate crossbench, given the refusal of Labor and the Greens to budge on this. Josh Frydenberg won over Hanson recently on his youth wage subsidy and may seek her support again.
But a narrow victory in Parliament won’t stop an election fight over super.
This is one issue where Labor and the unions are itching for a fight. The well-armed super funds would also be gearing up to protect their patch.
And then there’s the architect of superannuation himself, Paul Keating. The former prime minister recently went after what he called “a bunch of little bitchy Liberals trying to knock off 2.5 per cent of people’s income for the rest of their lives”.
That was a spray aimed at a small group of backbenchers. Imagine what’s in store for the Morrison Government if they go down this path.
David Speers is the host of Insiders, which airs on ABC TV at 9am on Sunday or on iview.