Earnings surge in lockdown, but is a slump ahead?

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September 20 2021
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A new report from CBA has shown that it may actually pay to be in lockdown, as growth in household income surged ahead in NSW and Victoria.

It was shown that the reduction in household income was more than offset by government support payments, with an increase in savings expected to facilitate a bounce in services-related spending and the economy post-lockdown.

However, while the bank expects household spending to surge once businesses reopen, others hold doubt that continued earnings growth is likely post-lockdown.

Speaking to nestegg, Emmanuel Datt, chief investment officer of Datt Capital, noted he expects a drop in earnings once stay-at-home orders are lifted.

“While Australia is on the right track in terms of reopening, ultimately, the reality is that Australia is in a recession and the reopening will expose this harsh fact,” he said.

According to Mr Datt, casual workers who are currently on generous emergency payments from the government will not be incentivised to re-enter the labour market immediately once lockdowns end.

“Once people stop working, they get used to living a certain way,” he said.

CBA’s report found that NSW government payments made up 50 per cent of wages and salaries paid in August. In May, before the lockdown, they were worth around 25 per cent.

The COVID-19 disaster payment scheme currently enables access to $200, $450 or $750 per week to those out of a job, depending on the number of hours lost.

Mr Datt stated “there will be casual workers earning a lot more on government benefits than they would have done previously”.

Alongside perhaps earning more than they would have prior to lockdown, households are currently not able to spend a great deal, sending household savings soaring.

According to the CBA report, accumulated savings average $11,200 per person more than what is normally expected in pre-pandemic conditions.

Mr Datt expects many casual workers to spend time living off these savings before returning to the labour market for less.

What’s more, Mr Datt expects to see a further capping of earnings, as governments enact measures to recoup lost funds.

“Government stimulus measures cannot last forever and the ‘piper must be paid’ at some point,” he said.

Mr Datt expects the introduction of a high-income surcharge measure, similar to what was implemented after the global financial crisis, further taxing workers by approximately 2–3 per cent should they earn over a threshold value.

Moreover, he predicted increases in duty on immovable assets such as real estate.

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