The changes to JobKeeper announced this week would strip more than $8 billion a month in economic support, the Grattan Institute has warned, questioning whether the cuts are too much and too sudden.
The institute's Brendan Coates said the government was pouring just under $12 billion a month into the JobKeeper wage subsidy at the moment. From October, the amount was projected to fall to just $3.5 billion a month, and from January it would fall further still, to $2 billion a month.
"The big question is can you reduce this much support to the economy? Can you really take that level of income support out?" he said. "Unfortunately, at the same time the government has pulled back on the JobSeeker payment, so for those who are no longer eligible for JobKeeper, they're going to see a big drop in their income, from $1500 a fortnight to about $810 a fortnight - so a decline of almost half. And that's the missing piece of the puzzle - that decline in the payment is too large."
Mr Coates was commenting after the government announced major changes to its wage subsidy and the unemployment benefit from October, with both payments cut significantly.
The changes to JobKeeper were sensible, but there was not enough support for people who would lose the payment, he said.
Mr Coates also pointed to the creation of a double welfare system. People still attached to an employer but stood down would receive much higher payments on JobKeeper than people on the unemployment benefit.
And he said it was difficult to see how the requirement to apply for four jobs a month could work in Melbourne, which is under lockdown.
Mr Coates's concerns about the cut to JobSeeker were shared by other economists.
Deloitte Access Economics principal Chris Richardson said he was pleased the unemployment benefit had not been cut back to the low pre-pandemic rate, but he called for more clarity about its future. The old unemployment benefit was $280 a week. It was boosted to $560 a week in March, but will be pared back to $410 from October.
"JobSeeker dollars are probably the best spent money in the economy at the moment,' Mr Richardson said. "It's not just money going into the economy, it's money going into the hands of Australia's poorest people who live in Australia's poorest communities. Each dollar, if you like, does a few different jobs, helping not just individual families but the neighbourhoods in which they live.
- Treasury warned two-tier JobKeeper would be complex and potentially unfair
- Prime Minister Scott Morrison announces changes to JobSeeker, JobKeeper payments
- As the virus surges, the economy will be back on the meds
- The puzzle of Australia's low coronavirus death rate
- The loneliest coronavirus cops in Australia
- How will the JobTrainer scheme work?
- Federal Parliament sittings cancelled due to COVID-19 outbreaks
"The virus will find your weakest point in any nation, and our weakest point was how much money we gave the unemployed to live on. We have given a degree of stronger-for-longer on that front, even if we haven't solved the ongoing problem."
Economist Saul Eslake described the cut to JobSeeker as tough.
"That's a big cut in the income of people who are relying on it and it will have consequences for them," he said.
When the JobKeeper rules changed in October, many more people could lose their jobs and end up on the unemployment benefit. Their pay would go from $1500 a fortnight to $820 a fortnight, a big psychological shock, he said.
"Yes, it's a significant increase over $40 a day, but it's still going to imply more hardship for those who remain dependent on it, and in a relative sense, especially, for those for whom this is a new experience," Mr Eslake said. "One of the characteristics that Morrison and others acknowledge of this recession is that it's thrown onto income support a lot of people who have never had any previous encounter with Centrelink."
But he welcomed the extension to JobKeeper, saying it would avoid the risk of a "fiscal cliff" at the end of September that could otherwise have plunged the economy into another quarter of negative growth. While the new two-tier payment system would bring a new layer of administrative complexity, that was a price worth paying to get rid of the anomaly of people earning more on JobKeeper than they were before, he said.
Mr Richardson also supported the changes to JobKeeper, saying it made sense to trim the payment but keep it in place.
"Unless a business is really going to be there, if it's a bridge to nowhere, then there are probably better ways to spend the money, which is why they're starting to gently wind it back, and that's probably fine," he said.