Computer lab, Curtin University of Technology, Perth, Western Australia
This exceptional performance is, arguably, evidence of both an effective fiscal stimulus package and the strength and responsiveness of the social security system, that was mobilized quickly to address the new needs generated by the crisis.
The Australian Government introduced fiscal stimulus measures in stages in order to respond to the changing nature of the crisis. The total package contained three main measures. Firstly, it increased social transfer payments to low and middle-income groups. Secondly, there was investment in social infrastructure, including schools, health care and housing. Thirdly, there were also new medium-term investments in economic infrastructure.
Among the immediate social security measures undertaken by the Australian government were measures focused on boosting the disposable incomes of working families and welfare recipients through new cash transfers. As can be seen in the composition of the Australian stimulus package in figure 1, as much as 41 per cent of the new spending was devoted to social transfers. This is significantly higher than other high-income countries, which, on average, assigned around 11.7 per cent of their stimulus packages specifically to social security measures.
These transfers were rapidly disbursed and had an almost immediate impact on consumer spending, retail sales and economic growth. The transfers consisted of one-off additional payments to pensioners of US$1,280 for individuals and US$1,920 for couples. The package also included additional payments of US$915 to eligible persons providing care to the elderly or disabled and for each child in families receiving the Family Tax Benefit (which is a means-tested transfer payment received by low and middle-income families). Furthermore, a number of additional one-off transfer payments targeted at a variety of low and middle-income groups meant that well over half the population of Australia received payments of around US$900 as part of the social security response.
These transfers generated significant multiplier effects as the payments were timed to be received by families with credit constraints during the lead-up to the Christmas holiday period. This helped boost aggregate demand and limit economic leakages that could have been incurred through these income groups reverting to saving as a risk response. The one-off increases in transfer payments were supplemented by major revisions to the old age pension system and other social security benefits in May 2009. These reforms have resulted in substantial permanent increases in welfare payments. The net impact of these revisions will be to increase expenditure on pensions and related social security payments by US$13.2 billion over the next four years.
This measure served to increase consumer confidence: instead of saving these payments, beneficiaries spent them, thereby sustaining economic demand. It is important to note that this approach corresponded with the income-led growth strategy that has been advocated by the International Labour Office (ILO) throughout the evolution of the crisis.
In late 2009, the Australian labour market appears to have recovered strongly. Employment increased in the latter months of 2009, creating 95,000 additional jobs between September and December. In May 2009, the government predicted that unemployment could peak at around 10 per cent without any stimulus measures. Instead, as of December 2009, the national unemployment rate stood at 5.5 per cent, having declined 0.3 percentage points since October – a significantly more positive situation than forecast. All indicators now suggest that the job market has stabilized – 136,000 jobs have been created since the labour market up-turn began in August 2009. Importantly, a significant proportion of these new jobs are full-time and secure.
What lessons can be gleaned from the Australian experience? The documented results outlined above affirm that income-led responses to crises are an effective option for those countries that possess sufficient fiscal reserves. Principally, it seems that spending on low and middle-income groups as a social security measure can limit the effects of an economic and labour market recession, restore public confidence, and provide an important component of the exit strategy from the crisis by stimulating aggregate demand (via public consumption). Furthermore, as with other positive examples such as the Danish ATP’s management of social security funds during the crisis, it is clear that governments and social security administrations are not helpless to deal with crises when and where they hit. To a significant extent, how well a country manages during a crisis depends on the policy choices made and the subsequent importance assigned to these choices. Although it is important to recognize that countries like Australia had the necessary fiscal reserves to finance their stimulus packages, including the tax-financed social assistance initiatives, the Australian experience demonstrates that countries do have considerable control over their destinies.
ISSA. 2009. Seminar on social security in times of crisis: Australian social policy in the economic downturn. www.issa.int/aiss/News-Events/Events/Seminar-on-Social-Security-in-Times-of-Crisis-Impact-Challenges-and-Responses
Khatiwada, S. 2009. Stimulus packages to counter global economic crisis: A review (Discussion paper No. 196). Geneva, International Institute for Labour Studies. www.ilo.org/public/english/bureau/inst/publications/discussion/dp19609.pdf
Kyloh, B. 2010. Riding your luck and adopting the right policies: Why the Australian economy is rebounding strongly . http://column.global-labour-university.org/2010/02/riding-your-luck-and-adopting-right_7214.html