Making the Most of The Coronavirus Supplement
The government has just begun rolling out JobSeeker—a revamped and significantly-increased version of the unemployment payment formerly known as Newstart. This is a big deal: for many low-income earners, JobSeeker (or JobKeeper) represents a significant increase in cashflow. And with that comes an economic opportunity: the chance to build a three-month emergency fund to use whenever the next black swan event strikes.
Unemployment Payments: A Modern Australian History
The effective doubling of Newstart under JobSeeker and the Coronavirus Supplement is historically significant. For context, we last saw a real increase to unemployment payments more than a quarter of a century ago when the Keating government in 1994 boosted Newstart by $2.95 a week (a triple-shot to get you through Friday, or $5.47 in today’s dollars). Under the Hawke-Keating government, Newstart was pegged to wage growth, same as the pension, meaning that a higher median wage for Australian workers meant a higher payment to the unemployed. This changed in 1997, when the Howard government instead pegged Newstart to inflation—although they kept the pension pegged to wage growth. This is why in the mid-nineties Newstart paid an equivalent 90% of the pension, but today pays only around 60%.
This Howard-era decision is the economic and legislative underpinning of why we ended up in a situation where Newstart, while perceived by many as insufficient, still grew by enough year-over-year that its legitimacy could be argued. At least it was indexed to something. Of course, a couple months ago, when the nation’s unemployment shot up by hundreds of thousands, and all of those people—hint: voters—were set to confront the reality of what was an insufficient payment, Newstart as it stood became untenable, even in the eyes of a government that had traditionally been hostile to the program.
Seeking a New Start
To be clear: Newstart doesn’t exist anymore. It is now called JobSeeker, and while the Coronavirus Supplement is in effect, it pays out double what Newstart used to. And as much as an increase of some sort seemed in order, I’m not sure a full-on doubling of the payment was ever floated for serious debate.
But maybe it should have been: in its March 2019 Poverty Lines report, the Melbourne Institute for Applied Economic and Social Research marked the relative poverty line for an unemployed individual as $429.40/week including housing, and $256.23/week not including housing. Newstart was previously paying out $277.85—probably enough to live with your parents, though barely enough to get by in many capital city sharehouses.
But now JobSeeker pays out $550 a week. If you’re not paying for housing, under JobSeeker you’re receiving more than double the poverty line—and if you are paying for housing, you’re receiving an additional $120.60 above the poverty line. And JobKeeper—included in the tables embedded in this article—pays out a staggering $750 a week, representing a wage increase for many casual workers, putting them well above the relative poverty line. This is summarised in the table below.
Poverty Surplus Under New Programs (Weekly)
| Unemployed, Housing Inc | Unemployed, Housing Exc | Employed, Housing Inc | Employed, Housing Exc | Newstart | ||
|---|---|---|---|---|---|---|
| $429.40 | $256.23 | $529.57 | $356.39 | $277.85 | ||
| JobSeeker | $550.00 | $120.60 | $293.77 | $20.43 | $193.61 | $272.15 |
| JobKeeper | $750.00 | $320.60 | $493.77 | $220.43 | $393.61 | $472.15 |
| JobKeeper (After Tax) | $654.00 | $224.60 | $397.77 | $124.43 | $297.61 | $376.15 |
| Median Wage | $1,071.00 | $641.60 | $814.77 | $541.43 | $714.61 | $793.15 |
| Newstart | $277.85 | -$151.55 | $21.62 | -$251.72 | -$78.54 | $0 |
(e.g. JobSeeker - Unemployed, Housing Exc = $550 - $256.23 = $293.77).
The point is this: for many young, low-wage workers, this stimulus package represents more income than they’ve traditionally been receiving.
The Opportunity
It sounds counter-intuitive, but I’d argue that the economic logic of doubling welfare payments in the context of COVID-19 is a somewhat amiss. I applaud the increase in general—some sort of bolstering was long-overdue—but an increase this significant has come at a time when there isn’t actually anything for people to spend the money on. For most individuals transport costs are gone, eating out is gone, Friday night drinks are gone. Fuel prices have collapsed, small businesses are offering cheaper deals to keep themselves afloat—necessities and luxuries alike have been carved out of our budgets in full.
So: if there is more money coming in, and less money going out, then that means one thing: many individuals will have unprecedented access to an excess pool of cash. And excess is an opportunity to pay down bad debts, undertake necessary maintenance, and—most importantly—to save.
I’m now going to invoke. I really do think this is a good book. Sure, it’s mostly relevant to people looking to own property—but I have very little interest in property, and still I found the book quite useful.
I’m going to invoke one small piece of advice I received years ago, and which you can find in the best-seller you know all too well, The Barefoot Investor. The piece of advice is this: you should have $5,000 accessible in a savings account at all times.
An amount of money like that can go a long way. As per the poverty rates cited earlier, you can survive on $5k for around twelve weeks housed, or nineteen weeks unhoused. That’s for sure enough of a buffer for a person survive until welfare payments kick in. And if welfare never does show up, it’s still three-to-five months, which—barring a particularly serious, life-altering situation—is about enough time for a person to get back on their feet. With this sort of buffer comes freedom: freedom to leave a toxic work environment, freedom to exit an abusive live-in relationship, freedom to make other difficult, necessary choices.
Of course, you have to actually have the buffer in the first place.
And with the combined powers of JobSeeker and basic budgeting, I think a lot of people are going to be able to get there.
Building a Buffer with JobSeeker
According to the Prime Minister, JobSeeker will remain at this current Newstart*2 rate for six months (until 1 October), at which time it will be cut back.
New Programs Compared With 2019 Newstart
| Weekly | Six month total | Newstart surplus total | |
|---|---|---|---|
| JobSeeker | $550 | $14,300 | $7,075.90 |
| JobKeeper | $750 | $19,500 | $12,275.90 |
| JobKeeper (After Tax) | $654 | $17,004 | $9,779.90 |
| Median Wage | $1,071 | $27,846 | $20,621.90 |
| Newstart | $277.85 | -$7,224.10 | $0 |
This is locked in for now, the government says. Even if Coronavirus were to disappear tomorrow, these figures would still constitute the payments made to individuals over the next few months. For many, this constitutes an increase in cashflow at a time when expenses have decreased. And so, barring specific circumstances, the following should be true.
Your expenditure should not increase (and will likely decrease) during quarantine.
As much as possible, anything the government pays you above your regular non-COVID income should be put in savings. This means:
Even with more money coming in, you should be able to stick to your old budget.
If you are receiving JobSeeker, and you were previously receiving Newstart as your sole source of income, you should be able to keep your old budget (~$275/week), and put the entirety of your new earnings (an additional $275/week) into savings. After all, there’s nowhere to go spend your money anyhow.
Equally, if you were a casual worker earning less than JobKeeper’s $750 a week, you should be able to save the difference between the two amounts. If you were earning $550/week casually, you should be saving $200 a week under JobKeeper.
Saving just $200 a week sums to $5,000 by the end of the six-month increase period.
If you’ve been struggling on Newstart or in a poorly-paying casual job, you don’t have to stick to your old budget. Even if you increase your personal spending by ~$70 to $350/week, you’ll still be saving $200/week, which will sum to more than $5k in savings by the end of September. And trust me, with that amount in savings, the next time a tragedy hits, you’ll feel much more secure and a lot less anxious.
Conclusion
The next tragedy may not hit on a global scale. It may not even hit on a national or city-wide scale. It might be your job lost in an unexpected round of layoffs, a loved-one injured in a car crash, your house burgled or burned down in the middle of the night. Or it may even be a large, serious situation poorly-handled by the powers that be—less like COVID-19 and more like the 2020 bushfires. And don’t get me wrong, $5,000 is no cure-all. It’s not much in the scheme of things for victims of terrible black swan events, or for the families of those victims. The effects of unprecedented events are often so awful for so many.
But in the face of awful, having something is better than having nothing, and the uncertainty of the modern world—a fragile globe of interdependent people and systems—necessitates that we as individuals maximise our own ability to survive should a significant portion of our networks be severed. In trying times, a little bit of security—be it financial, emotional, or mental—goes a long way. And make no mistake; these are trying times. But we should still make the most of them.
Additional Data
$5,000 Savings Goal:
Weekly Budget Under New Programs
| Payment | Savings | Maximum Expenditure | |
|---|---|---|---|
| JobSeeker | $550 | $192.30 | $357.70 |
| JobKeeper | $750 | $192.30 | $557.70 |
| JobKeeper (After Tax) | $654 | $192.30 | $461.70 |
| Median Wage | $1,071 | $192.30 | $878.70 |
| Newstart | $277.85 | $192.30 | $85.55 |
Poverty Surplus Under New Programs (six-Monthly)
| Unemployed, Housing Inc | Unemployed, Housing Exc | Employed, Housing Inc | Employed, Housing Exc | Newstart | ||
|---|---|---|---|---|---|---|
| $11,164.40 | $6,661.98 | $13,768.82 | $9,266.14 | $7,224.10 | ||
| JobSeeker | $14,300.00 | $3,135.60 | $7,638.02 | $531.18 | $5,033.86 | $7,075.90 |
| JobKeeper | $19,500.00 | $8,335.60 | $12,838.02 | $5,731.18 | $10,233.86 | $12,275.90 |
| JobKeeper (After Tax) | $17,004.00 | $5,839.60 | $10,342.02 | $3,235.18 | $7,737.86 | $9,779.90 |
| Median Wage | $27,846.00 | $16,681.60 | $21,184.02 | $14,077.18 | $18,579.86 | $20,621.90 |
| Newstart | $7,224.10 | -$3,940.30 | $562.12 | -$6,544.72 | -$2,042.04 | $0 |
(e.g. JobSeeker - Unemployed, Housing Exc = $14,300 - $6,661.98 = $7,638.02).