Australia’s Reserve Bank Governor Phil Lowe has warned ending the $1500 JobKeeper’s wage subsidy too early would be a “mistake” and it may need to be extended beyond September.
Breaking with the Prime Minister’s rhetoric that the scheme needs to be phased out as soon as possible, the RBA chief has warned the premature withdrawal of stimulus could damage the economy.
But he’s proposed that any extension would likely to be more targeted, for example for the tourism industry hit by international border closures, an option the Prime Minister has previously flagged.
Giving evidence to Parliament’s COVID-19 inquiry today, he also described the nation’s April jobs figures as a “shocking set of numbers.”
“It’s very important that we do not withdraw the fiscal stimulus too early,” he said.
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“My main point here is we’ve got to keep the fiscal stimulus going until the recovery is assured.”
The RBA chief said record low-interest rates meant Australia could borrow to fund the stimulus.
“It would be a mistake to withdraw the fiscal stimulus too quickly. The level of public debt in Australia, while it’s rising, is still low.”
Mr Lowe also warned that international border closures were likely to remain in place for an extended period.
“Realistically I don’t see the borders opening this year, on a substantial scale,” he said.
“There may be a need to have some form of JobKeeper for specific industries. So rather than have it right across the board, to narrow it down. But again it depends so much on what’s happening in four months’ time.
“It may be many of our industries are getting back to something approaching normal. There’s just tremendous uncertainty.”
Mr Lowe said that as banks’ amnesty on home loans came to an end and JobKeeper subsidies were phased out the economy needed to be carefully monitored.
He also flagged that home loan interest rates were likely to remain low “for years.”
“Well, it’s clearly going to be a critical point when that scheme comes to an end and also when the deferral for six months of mortgage payments and other payments that the banks are offering,” he said.
“I note the JobKeeper program, it’s six months, but a three-month review was built into that program and I think that was very sensible of the Government to do that.
“It will be important to review the parameters of that scheme. It may be in six months’ time we bounce back well and the economy is doing – doing reasonably well, and these schemes, which were temporary in nature, can be withdrawn without problems.
“But if the economy is not recovered reasonably well by then, as part of that review we should be looking at, perhaps, the extension of that scheme or the modification in some way.
“But I think at this point, I think it’s too hard to say because the outlook remains very uncertain but it’s going to be a very critical point in the economy.”
The RBA expected unemployment would continue to rise.
“We will see further declines in jobs. They will not be as stark as the declines we saw in April,” he said.
“I think the worst of it was the period up until mid- to late-April. Since then, there has been some stabilisation. In certain parts of the economy there has been a recovery in jobs. When we put out our statement on monetary policy in early May, we were expecting a decline in total hours worked in the economy of 20 per cent. So a staggering number.
“As they’ve come in, they’re progressively revising that number. It will be staggering but as the data has come in we’ve progressively likely downward.”