A tale of two wage subsidies: The American and Australian fiscal responses to COVID-19

July 2020

Steven Hamilton (George Washington University)

IIEP working paper 2020-12

Abstract: Australia suppressed the virus with swift and strong public health measures including stringent border controls. As of July 2020, the virus continues to spread uncontrolled across the US, resulting in the most recorded cases and deaths of any country. Both countries instituted widespread lock-downs and similarly generous fiscal support, yet Australia has experienced a far milder recession, highlighting the critical role of public health measures in protecting the economy. The role of broad cash stimulus necessarily has been more limited than in an ordinary recession, justifying the use of wage subsidies that encourage businesses to retain workers. The Australian wage subsidy, delivered via the tax authority, was better targeted, more generous, more accessible, but slower to deliver liquidity than the American wage subsidy delivered via private banks. The experience highlights the critical need for significant investments in IRS infrastructure to better prepare for future crises.

 

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