The Covid-induced recession has been used across the world to justify massive increases in debt-funded government spending, as well as cheap easy credit. Such actions have definitely helped businesses survive in the short term, though the sums paid out have been massive. Crown Casinos, for example, reported receiving $111 million in Jobkeeper subsidies from March to June 2020, while (the also loss-making) Qantas reportedly pocketed around US$780 million during 2020. Even the smallest businesses on Jobkeeper have received thousands of dollars a month, and countless businesses have had the taxpayer cover most of their wage costs.
Tax-free "cash flow boosts" of between $20,000 and $100,000 were also paid to virtually all small and medium-sized businesses with employees. They got the money automatically when they lodged their BAS, and didn't even need to apply.
The orgy of government spending, however, is problematic because you cannot keep unprofitable businesses afloat indefinitely, interest rates may not stay low forever, and public debts (effectively deferred taxes) have to be repaid by someone. Many people simply saved their stimulus handouts (the household savings rate for Australia soared to around 20 percent during 2020), and no amount of stimulus can restart industries, while they are affected by mandatory shutdowns or closed borders.
The biggest problem with stimulus spending in Australia, however, is that a large chunk of the poorly targeted spending was simply a windfall benefit to recipients that didn't need a subsidy.
The $130 billion Jobkeeper programme (now revised down to $90billion) has been the largest single stimulus element, yet we now know that many big company recipients had been making record profits. Toyota announced it will voluntarily pay back $18 million, while Cochlear opted to repay $23.1m it received in the December half. So far some 16 ASX-listed companies have repaid $126m of the benefit.
You can be assured, however, that the majority of un-needy recipients will simply keep a low profile and pocket a pile of money.
Car dealer group Eagers Automotive received $129.6m in JobKeeper between March and September. It recently declared a full-year profit of $156.2m. Clothing group, Premier Investments, which received $68.7m in Jobkeeper subsidies after delivering a record $138m profit for the 2020 calendar year, has not (along with Eagers) indicated any willingness to pay back the money.
It has also been alleged that some businesses set out to game the scheme by shifting revenues or generating unrealistically pessimistic forecasts, though the vast majority of recipients operated within the spirit of the scheme.
It is extraordinary that there is minimal political fuss over the huge waste inherent in Jobkeeper, a scheme which has channelled billions directly from taxpayers to business profits. (Rather than criticising the scheme, the Opposition amazingly has kept calling for its extension.) Contrast this with the fuss over the (small in comparison) $102.5 million Community Sport Infrastructure Grant Program.
Jobkeeper outlays are nearly one thousand times the size of Community Sport Infrastructure spending. Furthermore, under the latter scheme the money did make it through to community groups (albeit less deserving ones in some cases). Under Jobkeeper, a lot of employers have pocketed huge sums of public money for keeping on employees they would have retained anyway.
The notion of governments borrowing at artificially low interest rates over the long term also smacks of belief in a "free lunch". Undesired likely future side-effects include renewed inflation (especially of asset prices), income losses for savers, and crowding-out of non-government borrowing.
Many Australian governments also seem to believe that they "might as well be hanged for a sheep as a lamb" and have added (uneconomic) pet projects to the borrowing binge. For example, the Australian Government brought forward its unaffordable income tax cuts, increased defence spending, and is going ahead with expensive ill-considered schemes like Snowy 2 and the Inland Rail.
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