Substantial NSW govt. COVID financial support is tracking well below the weekly budgeted cost

Kieran Davies

Coolabah Capital

With last year showing the importance of government support in limiting the economic fall-out from the pandemic and contributing to economic recovery, the NSW government has acted quickly to provide targeted financial assistance to households and businesses affected by the Delta outbreak (the state has been helped in part by Commonwealth funding, which is separately providing additional direct support to workers). CCI estimates that the two largest measures - namely, business grants and a wage subsidy - are running at  about $0.5bn per week, which is substantial support relative to the size of the state economy but less than the estimated budget cost of $1.1bn per week (or $0.4bn relative to $0.8bn for the state alone if Commonwealth funding is excluded).  The state's budget deficit is widening as revenue takes the near-term hit from the outbreak, but these calculations suggest that the impact to date of financial support on the budget bottom-line is tracking well below the expected cost.  

As the the current COVID outbreak has deepened, the New South Wales government has acted quickly to limit the economic cost of necessary health restrictions. The government has introduced a range of policy measures that provide targeted financial support to households and businesses, bolstered by joint funding from the Commonwealth government for a wage subsidy and with the Commonwealth separately providing additional financial support to households via COVID disaster payments.

The public information on these measures has naturally focused on the specifics of the financial support, such as the eligibility criteria and dollar amounts, with less information on the expected cost of the policies.  That said, in terms of the available detail on the measures:

  1. When Sydney was first locked down in late June, state support was initially provided via grants to affected businesses at an estimated cost of about $1.4bn, where that short lockdown was quickly extended to mid July.
  2. On 13 July, just before the lockdown was extended to 30 July, the state government introduced a number of new measures at a total cost of up to $5.1bn, or up to $4.1bn excluding the joint Commonwealth support for the wage subsidy. The main measures were business grants, which were increased to “up to $2.1bn”, and the wage subsidy, which was costed at $2.1bn, split equally between the Commonwealth and New South Wales. Additional measures comprised a small business grant, a payroll tax waiver, disaster payments to people outside Commonwealth-declared hotspots, support for landlords, support for the arts and accommodation industries, a deferral of gaming tax assessments, and funding for homelessness and mental health.
  3. On 28 July, the state and Commonwealth governments increased their financial support as the lockdown was extended from 30 July to 28 August, expanding the jointly-funded wage subsidy to business and with the Commonwealth separately increasing disaster payments to affected workers. No costings were provided for this additional support, with again a natural focus on the specific support provided to firms and individuals.

With New South Wales not expected to formally update its budget until November, we have used this limited available information to estimate the cost of the two largest measures, namely state business grants and the wage subsidy. Since the lockdown now extends to September and might be extended again, we focused on the weekly cost, estimating a budgeted cost of about $1.1bn per week, split $0.8bn for the New South Wales government and $0.3bn for the Commonwealth government.

  • The state business grants were costed at “up to $2.1bn” on 13 July, at which time the lockdown was expected to run for about five weeks, pointing to an expected weekly cost of about $0.4bn.

  • The wage subsidy was initially costed by the prime minister at about $0.5bn per week (or $0.25bn each for New South Wales and the Commonwealth), with the AFR reporting that the subsequent expansion of the policy increased that to $0.65bn per week (or about $0.3bn each for New South Wales and the Commonwealth).

Gauging how much of this financial support has been delivered to date, state government data show that actual spending on these two largest measures is running at about $0.5bn per week (this assumes that the current backlog of applications will be paid in full given very few applications have been declined to date). This represents substantial support relative to the size of the state economy, but is well below the estimated budgeted cost of about $1.1bn per week,  mainly because of an undershoot of spending on the wage subsidy (note that this assumes that the reported spending on the wage subsidy represents total spending by the state and Commonwealth governments). Excluding the Commonwealth’s contribution to the wage subsidy, this suggests actual spending by the New South Wales is running at about $0.4bn per week versus the estimated budgeted cost of about $0.8bn.

  • State business grants are running at a weekly rate of about $0.4bn, which is in line with the estimated budgeted cost.

  • The wage subsidy is running at a weekly cost of just over $0.1bn, well below the total estimated budgeted cost of almost $0.7bn per week. The share paid by New South Wales is just under $0.1bn, compared with an estimated cost of about $0.3bn per week.

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Kieran Davies
Chief Macro Strategist
Coolabah Capital

Based in Sydney, Kieran Davies joined Coolabah Capital in 2020, an asset manager than runs over $7 billion in fixed-income strategies, and is responsible for macroeconomic research and investment strategy, contributing to the investment decisions...

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