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Economic response to coronavirus—social security measures part 2: $750 lump sum payments


This FlagPost was first published on 23 March 2020 and has been updated on 24 March 2020 to reflect Government amendments to the Coronavirus Economic Response Package Omnibus Bill 2020.

On 12 March 2020 the Australian Government announced an economic stimulus package in response to the coronavirus (COVID-19) pandemic. On 22 March 2020, the Australian Government announced a second package of measures. This FlagPost details the two $750 lump sum payments for recipients of certain social security and veterans’ payments and certain concession card holders announced in the first and second packages: one payment to be paid from 31 March 2020 and one payment to be paid from 13 July 2020. The second $750 payment will exclude some recipients of the first payment. This excluded group will instead receive a payment known as the Coronavirus Supplement or COVID-19 Supplement.

A separate FlagPost, Part 1, details the other social security measures announced as part of the second package including the Coronavirus Supplement.

The legislation providing for the social security measures is the Coronavirus Economic Response Package Omnibus Bill 2020. The Bill was introduced and passed by the Parliament on 23 March 2020.

First $750 payment

The first $750 payment was announced on 12 March 2020 as part of an economic stimulus package in response to the coronavirus pandemic. Payments are to be made from 31 March 2020 to those who were in receipt of an eligible payment or who held an eligible concession card in the period 12 March 2020 to 13 April 2020.

Only one payment of $750 can be made to each eligible individual, regardless of how many eligible payments they receive or concession cards held. A person can be eligible for the $750 regardless of the rate of the eligible payment they receive. The individual must be residing in Australia to be eligible for the payment.

Table 1 details the payments and concession cards eligible for the one-off payment.

Table 1: Payments and concession cards eligible for the first $750 payment

Category

Payments/cards

Social security income support payments

Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Wife Pension, Widow B Pension, Austudy, Bereavement Allowance, Newstart Allowance, JobSeeker Payment*, Youth Allowance, Partner Allowance, Sickness Allowance, Special Benefit and Widow Allowance

Family assistance payments

Family Tax Benefit, including Double Orphan Pension.

Veterans’ payments

Veteran Service Pension; Veteran Income Support Supplement; Veteran Compensation payments, including lump sum payments; War Widow(er) Pension; and Veteran Payment.

Concession and health cards

Pensioner Concession Card, Commonwealth Seniors Health Card holders and Veteran Gold Card holders

Other

ABSTUDY (Living Allowance) and Farm Household Allowance

* JobSeeker Payment is replacing Newstart Allowance, Sickness Allowance, Bereavement Allowance and a number of other payments closed to new recipients from 20 March 2020.

Source: Australian Government, Stimulus payments to households to support growth, fact sheet, Treasury, March 2020.

The payment will be made automatically from 31 March 2020 onwards to eligible recipients—they will not need to apply for the payment.

Those who make a claim for one of the eligible payments during the period 12 March 2020 to 13 April 2020, and who are later found to be eligible for the payment, will also receive the first $750 payment.

Second $750 payment

The second $750 payment will be made available to the same recipients as the first payment that are eligible for a qualifying payment or card on 10 July 2020, with the exception those who are receiving the Coronovirus Supplement on 10 July 2020. This will exclude the following payment recipients:

  • JobSeeker Payment (and the payments transitioning into JobSeeker Payment including Sickness Allowance, Wife Pension and Bereavement Allowance)
  • Youth Allowance for jobseekers, students and apprentices
  • Parenting Payment (Partnered and Single)
  • Austudy
  • ABSTUDY Living Allowance
  • Farm Household Allowance and
  • Special Benefit.

The Coronavirus Supplement is a payment of $550 per fortnight to be paid for a period of at least six months (see Part 1 FlagPost for further information). Initially, student payment recipients were ineligible for the Coronavirus Supplement and would have been eligible for the second lump sum payment. However, following amendments to the  Coronavirus Economic Response Package Omnibus Bill 2020 in the Senate, the Government indicated that it would move to provide recipients of Youth Allowance (Student and Apprentice), ABSTUDY Living Allowance and Austudy with access to the supplement.

The second payment will be made automatically from 13 July 2020 onwards to eligible recipients—they will not need to apply for the payment.

Number of people who will benefit

The Treasury factsheet for the lump sum payments states:

  • around 6.6 million individuals will receive the first $750 payment and
  • around 5 million individuals will receive the second $750 payment.

The number of recipients of the second payment will be lower than this estimate following the exclusion of student payment recipients who are in receipt of the Coronavirus Supplement.

Cost of the payments

The two payments will cost an estimated $8.8 billion. The first payment will cost approximately $4.8 billion and the second will cost around $4.0 billion. The cost will be driven by demand based on the number of people claiming payments during the qualifying periods.

Stakeholder reaction

In response to the announcement of the first $750 payment (and prior to the announcement of the second package and the $550 Coronavirus Supplement), the Australian Council of Social Service (ACOSS) CEO Cassandra Goldie stated: ‘The payment will be welcome short-term relief but it’s nowhere near enough’.

Council of the Ageing Chief Executive Ian Yates stated: ‘Providing additional payments for people on government income support will help older Australians who are already struggling to keep up with cost increases and utility bills, alongside the increased medical costs that come with getting older’.

Key issues

Stimulus or support?

Announcing the first payment, Prime Minister Scott Morrison described it as an economic stimulus measure:

The cash payments, the cash payments have two purposes. And they're both important. Of course, those who receive it, that is obviously a benefit to them. But more importantly, frankly, it is about a cash injection into the Australian economy, which supports small businesses and supports medium businesses. So the cash payment works together with the cash flow support that we're putting in to small businesses. And that in turn supports the jobs, which means people can continue to participate positively in the economy and have greater confidence going forward.

The payments were compared directly with the stimulus payments made to similar groups by the Rudd Government in response to the Global Financial Crisis (GFC). Prime Minister Morrison stated:

Now, this [the economic response to the coronavirus package] is, as I said 1.2 per cent of GDP. To give you some comparison, when the initial stimulus was done for the GFC many years ago, those payments equated to some 0.88 per cent of GDP in that first package, which, as you know, was supported by the Coalition. And that used quite similar measures in that first stimulus. It was payments through the payment system. That was 0.88 per cent of GDP. The difference with this package is A. about $3 out of $4 of what's going into this is, is actually going into business cash flow.

There were a number of different one-off stimulus payments made in response to the GFC:

A number of research papers found that these payments boosted spending by recipients and were effective in providing an economic stimulus. In a 2012 article, Andrew Leigh from the Australian National University (now a Labor MP) examined survey data for those who received a stimulus payment. Overall, 40.5 per cent of those who had received a payment stated that they spent it; 24.0 per cent saved the payment and 35.5 per cent used the payment to pay debt. A 2013 working paper by Bruno Martorano from the UNICEF Office of Research which examined the 2009 payments found that those targeted at families were more effective than the tax bonuses provided to the broader population in terms of boosting spending and reducing poverty. In a 2014 research paper for the University of Melbourne’s Department of Economics, Shuyun May Li and Adam Spencer developed a model for analysing the effectiveness of the 2008 and 2009 stimulus payments. They concluded that the ‘the fiscal stimulus was quite effective in reversing the adverse impacts of the GFC on domestic output’. However, they found that the scale of the stimulus ‘seems to be excessive’ and that the stimulus effects may be undone by later budgetary contractions (intended to reduce government debt partly caused by the stimulus package).

Some have questioned the effectiveness of the 2008–09 stimulus payments. In an External Paper published by the Treasury, Tony Makin from Griffith University, found:

There is no evidence fiscal stimulus benefited the economy over the medium term. Largely implemented after the worst of the GFC had passed, fiscal stimulus countered the effectiveness of monetary policy by keeping market interest rates higher than otherwise and therefore contributed to a strong exchange rate. This worsened Australia’s international competitiveness and damaged industries in the internationally exposed sector, particularly manufacturing.

The stimulus purpose of the $750 payments in response to the coronavirus appears to have been discarded. Announcing the second payment, the Prime Minister said that the lump sums were now intended to support certain income support recipients during the pandemic with any economic stimulus a secondary consideration:

The nature of these payments and the purpose of these payments are changing. What this next payment is to indicate, is that we know this is going to go for six months. So we had one payment scheduled for April. We have another payment now scheduled for for July, for the next quarter. This is clearly saying that we expect this to go on for some time. And we know that those vulnerable groups may need additional income support during those periods. So, yes, it will provide some sort of support into the economy. Sure. But it will also provide some very real financial support for the most vulnerable in our community. So it has that broader purpose to that payment on that occasion.

The change to the stated purpose of the payments reflects the fact that the effects of the pandemic, including business closures and travel restrictions, will reduce the opportunities for the lump sum amounts to be spent. Uncertainty, particularly around employment and income, may cause some recipients to save the lump sum amounts rather than spend them.

Who misses out

A number of groups who may be considered low-income will fall outside the eligibility criteria for the lump sum payments. These include:

  • those who do not meet the residency criteria to be eligible for social security payments such as those on temporary visas and New Zealanders on a special category visa
  • Low Income Health Care Card holders (a concession card for low income earners who are not eligible for a Health Care Card attached to an income support payment) and
  • those with income or assets that are just over the income and asset test thresholds for  the various qualifying payments.
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