Reserve Bank emails reveal COVID-19 economic fears, JobKeeper confusion

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While Reserve Bank staff always present a calm message to the public, previously secret internal emails reveal just how concerned many of them have been about the economic fallout from coronavirus.

Staff at Australia’s central bank feared the initial Government stimulus packages were inadequate, calculated more than half of all casual workers would be ineligible for unemployment benefits, forecast 20 per cent unemployment and worried whole industry sectors might collapse as coronavirus ravaged the economy earlier this year.

When the $130-billion JobKeeper wage subsidy was eventually announced, the Reserve Bank of Australia so lacked detail about the most expensive Government spending program of all time that one senior staffer emailed their colleagues public tweets sent by the Prime Minister that included new data.

Never-before-seen emails, reports and text messages from inside the Reserve Bank of Australia at the height of the crisis — from junior analysts and department heads thinking out loud through to the deputy governor texting top bank executives — show distressing fears, confusion and unanswered questions as shops and business shut in March and

On a Sunday afternoon in early March — a month after Australia closed its border to Chinese travellers, but with only 67 (cumulative) positive cases in the nation — RBA deputy governor Dr Guy Debelle texted Westpac’s then-group treasurer Curt Zuber about


GD: [New York on] Friday seemed messy. What was your take?

CZ: Yeah, credit has been hit hard the last two trading sessions. No one wants to touch anything. LIBOR going wider and swaps the same. Very messy.


Libor is an interest rate banks use to settle debts with each other and has been used as a global benchmark for other interest rates on trillions of dollars of loans.

A wide rate can indicate banks are loath to lend to each other because they are concerned about risk.

The biggest issue, Mr Zuber wrote, was that no-one can “price the risk”, with the market trembling about what could be an epic hit to company profits generating seismic instability in the global economy.

“Agree,” responded Dr Debelle.

“I think people are just trying to figure out what this all means and the easiest decision at the moment is to do nothing, certainly not buy anything.”

The crisis escalated. Within two weeks, the Reserve Bank would be cutting its key interest rate to record lows in a desperate bid to boost a floundering economy.

The RBA’s cash rate — an interest rate that acts as a basis for the rates of everything from mortgages to credit cards — was chopped in half to just 0.25 per cent.

The pandemic was causing “major disruptions to economic activity across the world,” Dr Philip Lowe said, announcing the historic cut.

“This is likely to remain the case for some time yet as efforts continue to contain the virus.”

That afternoon, Dr Debelle texted Mr Zuber: “Will see how that goes.”

The response was swift: “Well done, I think you got it right.”

RBA’s casual concerns

With businesses cutting workers loose and huge queues outside Centrelink offices, unions and the Labor Party were demanding a vast wage subsidy program to keep people employed.

The Government initially resisted and its support was based on programs like early access to tax deductions (the instant asset write-off) and support for apprentice wages.

Inside the bank, economists like Iris Day were trying to work out how newly sacked workers would be able to eat.

Just after 6:00pm on Wednesday March 18 — only days after the Australian Grand Prix had been cancelled as fans waited at the gate — Ms Day emailed her analysis of the dire situation facing the one-in-five workers employed as casuals.

It was grim. Newstart payments would drop casuals into poverty. As tough as that sounded, more than half of them would not even be eligible.

“The buffer provided by Newstart is limited by the fact that it is equivalent to around 55 per cent of the size of the median casual worker’s wage,” she wrote.

Already the median fortnightly wage of a casual employee ($1,049) was lower than a standard non-casual employee, but now they would be on Newstart at just $550 a fortnight.

The Newstart payment was controversially low and put unemployed people into poverty.

The almost $40-a-day rate was so punishingly meagre that a broad coalition — including leading corporate associations such as the AI Group and the Business Council of Australia — had spent years unsuccessfully pushing for it to be raised.

It got worse, Iris Day noted. Income testing meant the pay packets of other earners in the household, or having an asset such as a property or savings, meant many casuals would be unable to get immediate support.

“Around half of casuals would not be eligible for Newstart payments based on the income test [because of others’ earnings in their household],” she wrote.

“A further 5 per cent would not be eligible based on the assets test.”

The next day, a Thursday, a senior research manager at the RBA, Gianni La Cava, read the analysis and added his own.

“That is interesting,” he wrote the next day.

“I note that the decline in employment seems to already be extending beyond casual workers.”

More than a million people were thrown into unemployment, many of them seeking Government support for the first time.

On the Sunday (March 22), the Prime Minister announced a “coronavirus supplement” for welfare recipients that essentially doubled unemployment benefits to $1,100 a fortnight, around the median wage casual workers had been earning. Newstart was dead, reborn as JobSeeker, and .

RBA blindsided by JobKeeper decision

On March 20, the UK Government revealed a wage subsidy program that would pay up to 80 per cent of a worker’s wage.

Days earlier, the New Zealand Government had done the same — within a week Canada followed suit, joining countries like Denmark, The Netherlands, Ireland and South Korea.

The Government repeatedly ruled out the support, arguing it would be inequitable and .

“One of the weaknesses of the system that you’re advocating for,” Prime Minister Scott Morrison told a journalist asking about the UK scheme on March 25, “is that it has to build an entirely new payment system for that to be achieved, which is never done quickly and is never done well.

“And that can put at great risk the sort of resources we’re trying to get to people.”

But on March 30 the Government changed position, announcing the . The news appeared to blind-side the Reserve Bank.

Economic analysts began a frenzy of modelling to determine the bank’s response.

Prices, Wages and Labour Market section head Natasha Cassidy put it starkly:

“The key question is how many businesses in the worst-hit industries can survive until payments begin in May?”

Near midnight, RBA economic analyst Tom Rosewall — the head of the section covering households and national accounts — emailed colleagues with his concern the payments would not do much to solve the biggest economic problem: a lack of demand for goods and services.

“There seems no obvious place to kick things off from the activity side,” he wrote.

“My initial thought was [for the Prices, Wages and Labour Market Section to] come up with a view of how much employment this sustains as a first-round effect, given the set of activity forecasts we have … presumably there is a boost to investment too through additional profits.”

From the documents revealed, it appears the bank was not fully informed nor given detail of the $130 billion wage subsidy before it was announced, even though it was the single biggest piece of Government spending in Australian history. (An accounting error meant it ended up costing )

The Prime Minister’s Twitter account has more than 400,000 followers. The next morning, Ms Cassidy emailed that a tweet sent from it noted 113,000 businesses had registered interest in the JobKeeper scheme.

“From ScoMo — perhaps Treasury have access to this data (if you think it is worth getting)?” she told colleagues.

‘A good outcome for households’

Already, senior research economist James Bishop was putting together rough figures about how many jobs the subsidy would save.

“Yesterday, we were forecasting a cumulative employment loss of 17 per cent (status quo, pre-subsidy) and 20 per cent (shutdown, pre-subsidy),” he wrote, before expanding to the headcount of workers made unemployed.

“That’s 2.2 million and 2.6 million in terms of heads.”

The policy targeted 6 million workers, but “the effect on ‘jobs saved’ is not 1-for-1, because some people would have stayed employed regardless”.

Still, the subsidy preserved the link between employees and employers, he wrote. Without it, unemployment would probably rise 4.5 percentage points instantly, he added.

“The key question,” he pondered, “is what fraction of eligible individuals will have their (employed) status preserved by the policy. It could be a lot higher than 10 per cent!”

The head of the section that examines households and national accounts, Tom Rosewall, shared his thoughts with other senior executives. The main one? Thank goodness.

“I think this one can also be viewed as helping increase the probability the economy bounces back quickly,” he wrote.

“This package helps ensure that other buffers that households and firms have available will not have to be used as quickly or at all. This is a good outcome for households.”

Later that night, at 9:19pm, he added his latest thoughts on how JobKeeper had saved the economy.

“The key change is that the unemployment rate is expected to peak at around 7 per cent in the second half of the year,” he wrote, .

“Much lower than the 8.5 per cent expected earlier.”

Although, despite JobKeeper, the RBA subsequently upgraded its peak unemployment forecast to around 10 per cent.

The JobKeeper wage subsidy — along with JobSeeker and the coronavirus supplement — has supported millions of people. Inside the Reserve Bank in March, as the economy melted, the forecaster sang its praises.

“What the policy does do is help ensure the assumed recovery in the activity forecasts takes place, and significantly reduces downside risk to the outlook,” he wrote.

“This policy goes a long way to fill the deficit in demand without damaging the economy.”

All the documents in this article were obtained legally, through the Freedom of Information (FOI) process.

The request sought information about income support and wage subsidies in the turbulent weeks between the introduction of social distancing measures and the introduction of the JobKeeper program.

Documents sent to the central bank from the union’s peak body, the Australian Council of Trade Unions (ACTU), BSR Group — the group behind Betta appliance stores and Furniture Zone — and the Australian Federation of Travel Agents were revealed but not disclosed in the process.

Exclusive by business reporter Daniel Ziffer (Original ABC Article)