Too Much of a Good Thing? Australian Cash Transfer Replacement Rates During the Pandemic

Abstract

During the early stages of the COVID-19 pandemic in 2020 the Australian federal government temporarily expanded the level of cash relief available to the working-age population through supplemental benefit payments, a wage subsidy and allowing lump sum withdrawals from private pensions. Here we examine the scope and direct distributional consequences of these measures. Two in five working-age Australians received at least one of these three forms of transfer over a 12-month window. The median recipient had close to half their pre-COVID-19 income ‘replaced’ by transfers. The programs interacted to create a two-tier welfare safety net that put in place a poverty-alleviating income floor for workers in low-earning occupations and those on unemployment benefits, and provided job certainty and greater direct income support to those with higher incomes. Aggregate weekly incomes were higher during the initial period of COVID-19 than they were pre-COVID-19. Descriptive exercises, such as this, do not provide information about the ‘impact’ of pandemic policies and are limited to what they directly measure. That noted, we raise an important question for decision-makers facing future shocks: at what point is there ‘too much of a good thing’ with crisis cash transfers?