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JobKeeper revamp in the works as virus puts Australia in recession

The centrepiece of the government’s response to the downturn has been its JobKeeper program with up to 3.5 million Australians’ wages supported by the subsidy. But the program has been criticised by some employers while Labor has argued it could be better targeted at individuals and industries in need.

The economy suffered its first economic contraction since March 2011, due in part to a collapse in household spending in areas such as restaurants and cafes.

The economy suffered its first economic contraction since March 2011, due in part to a collapse in household spending in areas such as restaurants and cafes.Credit:Jessica Hromas

A Treasury review into the scheme is to start soon and will feed into new government economic forecasts to be released on July 23. Those forecasts had been slated to be released next week.

Mr Frydenberg said the government needed to assess whether the program should be re-focused on particular sectors most affected by coronavirus-related shutdowns.

There were also questions about the flat $1500-a-fortnight payment because some people had enjoyed a pay increase under the current system.

“We want to understand whether the quantum — that $1500 payment — continues to be the right amount,” he said.

A reduction in the subsidy would enable the government to extend the program, due to end in late September, to sectors that have taken the largest hit from the coronavirus shutdown.

The bureau of statistics reported the accommodation and food services sector contracted by 7.5 per cent in the quarter, hit by the combination of the summer’s fires and virus-related restrictions including the ban on international tourism.

It said household spending fell by 1.1 per cent in the quarter. Expenditure on essentials grew by 0.6 per cent but spending on discretionary goods and services collapsed by 3.9 per cent.

Total business investment dropped by 0.4 per cent while capital spending by governments dropped by 0.7 per cent.

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Net trade contributed 0.5 percentage points to the result, but this was largely due to a drop of 6.2 per cent in imports.

The figures would have been worse but for Australia’s growing population. GDP per capita fell by 0.7 per cent, the largest quarterly drop since the start of the global financial crisis in late 2008.

The household saving ratio increased to 5.5 per cent, reflecting a lift in gross disposable income and a fall in consumption.

The increase in income was due to a 6.2 per cent jump in social assistance benefits such as JobSeeker and help to fire-affected communities including $1.4 billion worth of insurance payouts.

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Analysts expect the June quarter to be far worse, with some tipping an 8 per cent economic contraction. Mr Frydenberg said the economic impact would be “far more severe” than that evident in March.

The Federal Chamber of Automotive Industries reported new car sales in May were down 35.3 per cent on the same month last year. So far this year, car sales are 106,468 or more than 24 per cent lower than for the same period of 2019.

Shadow treasurer Jim Chalmers said the figures showed even before the worst of the coronavirus and the summer’s bushfires, the economy was struggling.

He said the decision to delay a full economic update until late July would add to community anxiety as Australia’s record run without a recession came to an end.

“This long run of growth was created by Hawke and Keating, defended by Rudd and Swan, and it ends under Morrison and Frydenberg,” he said.

“We need them to do a much better job managing their response to this crisis and its aftermath than they have done managing the economy in the recent years before that.”

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