Pain on the way post-September, economists warn

Economists are pushing for the government to announce a new package of support measures this month, to avoid bankruptcies and a surge in unemployment when the bulk of the government programs ends in September.

Saul Eslake said the healthy performance of Australia's economy over the past 30 years was down to four factors, three of which had now disappeared.

Australia could no longer rely on the above-average population growth of 1.5 per cent a year, with immigration set to stay at net-zero until at least the middle of next year.

The country's unusually close economic relationship with China is also souring, he said, with China having little choice but to buy Australian iron ore but almost all other exports now at risk due to "vengeful actions from the Chinese government". The housing boom is also unlikely to resume, he said.

"So a lot hangs on the fourth of those factors, good macroeconomic policy," he said, urging the government not to make the mistake of tightening spending too quickly. Support should be withdrawn gradually to avoid bankruptcies just as the economy was recovering its footing, he said, and targeted support could be replaced with investment and an expanded safety net to support the vulnerable.

Prime Minister Scott Morrison is considering measures to apply from October when programs end - the biggest being the $70 billion JobKeeper wage subsidy which pays three million workers.

Giving evidence at a Senate inquiry on Thursday economists called on him to out lay out the details in his budget update on July 23.

Grattan Institute chief executive John Daley said a "very substantial package" was needed, and it should be set out as soon as possible to give people confidence there was a plan. It was especially important to announce the future of JobKeeper and the JobSeeker unemployment benefit, he said.

"Well before October, an overall view about the direction and the kind of additional stimulus that is required ... would in itself be very helpful," he said.

Danielle Wood, also of the Grattan Institute, said a smaller JobKeeper program should continue, costing $12 billion to $15 billion.

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Mr Koukoulas said Australia would experience significant social and economic pain in October without a substantial ramping up of government stimulus.

The private sector is facing depression-like conditions, he said, with little appetite to invest in hotels, offices, housing, universities and the airline industry. Housing demand would be very limited given no immigration, and widespread wage freezes are severely constraining household income. Once the mortgage holidays and renter eviction bans come to an end in September, he fears evictions and dislocation.

The government had been stingy, he said, enacting red-tape measures making it difficult for people to get help, and "obsessing with the budget deficit" instead of spending the amount required to deal with employment disaster. The idea that small government was better than big government had been "put in the rubbish bin", he said, and had been proven wrong in recent months.

Mr Eslake expressed similar concerns about the picture after September, saying the hoped-for "v-shaped" (fast and steep) recovery was unlikely, partly because people would be reluctant to use all the freedom of movement the government was now allowing. But he said he takes some comfort from the government's signals that it would soon announce new support beyond September.

In the absence of immigration, the main source of growth in the economy is productivity growth, he said, warning against greater self sufficiency as a "cover" for protectionism or saving old firms whether or not they were economically viable.

He also urged the government to do everything it could to avoid new statewide lockdowns, which he said would be especially damaging, undermining confidence that the worst of the virus was past. If people began to expect an ongoing pattern was opening and closing, it would be very difficult to engineer a recovery, he said.

But Mr Morrison said the government's spend of $50 billion in 2.5 months was "a pretty big lift" and the economy could not "remain in ICU".

"What I've noticed with economists in recent months is they want us to spend nothing and they want us to spend everything. And so the truth is going to be somewhere in the middle," he said.

"We're prepared to do what's necessary, but we're also prepared to do what's responsible ... We can't let our supports hold businesses back. We can't let that happen. That will cost jobs and livelihoods and create dependency."

Treasury handed Mr Morrison a report on future options this week, and he said Cabinet had discussed it at length on Wednesday.

Daniel Wild, from the Institute of Public Affairs, said the sacrifice was not even. Job losses in the private sector had been 4.5 times the public sector.

"This is made worse by the fact that it is those public sector workers themselves that are deciding when the private sectIn the private sector workers are allowed to go back to work, creating a very clear moral hazard," he said. "It's clear now that there are two Australias - those that have been exposed to the negative effect of the lockdown and those who have been protected."

Thirty per cent of young people - or almost 500,000 people - were not in full-time work or education. Sixty per cent had lost hours or pay in the first few weeks of the lockdown, compared to 40 per cent of the wider population.

The number of people employed by small businesses had already dropped from 50 per cent to 41 per cent in 15 years and would fall further.

"The decline to small business is really an existential threat to our way of life that should be of deep concern to all of us."

He was critical of "petty" bans, including on activities such as fishing, surfing and golf, and also critical of the Black Lives Matter protests, saying the decision to allow the protests highlighted the fundamental divide between mainstream Australia and the elite.

Mr Eslake said the best guide to the number of unemployed was the number of people receiving the unemployment benefit, which was 12 per cent of the workforce in May - much higher than the official 7.1 per cent unemployment rate. The difference was made up of people technically employed but working zero hours, and the people not counting as part of the labour force because they weren't looking for work.