Australia's Treasury chief says government should worry about jobs and not rising debt during coronavirus crisis

The Treasury secretary, Steven Kennedy, has said he is “not particularly concerned” about Australia’s public debt rising during the Covid-19 crisis, instead encouraging the government to focus on jobs because debt will solve itself.

Kennedy’s comments to the Covid-19 Senate committee on Thursday are a strong signal that the government should use fiscal policy to boost the economy rather than attempt cuts to improve the budget position.

Thursday’s hearing began with a sobering review of April’s labour force statistics showing a loss of 600,000 jobs and an unemployment rate of 6.2%.

Kennedy said that “roughly speaking” the figures were in line with Treasury’s estimates of 10% unemployment, noting that if the 489,000 people who stopped looking for work due to Covid-19 restrictions were counted, the figure would have been 9.6%.

Kennedy also noted a “dramatic” fall in the number of hours worked, and estimated the rate of underemployment at 19.9%.

He gave Australian governments a thumbs-up for their handling of both the health and economic crises caused by Covid-19.

“We as a country, amid all the global gloom, [are] looking pretty good in a world that’s pretty disrupted,” he said.

“We’re handling the health crisis well, we’re in a sound fiscal position and from my perspective – I realise this is contested – there was a very quick response on the fiscal side. So far so good, I would say.”

Kennedy told the committee he was “not particularly concerned about the level of debt Australia is left with” at the end of the pandemic.

He said debt would be “significantly higher”, but given the economic shock it was “entirely appropriate” to respond in the way the government had, with $194bn of fiscal stimulus, including the $130bn jobkeeper wage subsidy.

While government revenues would continue to decline, Kennedy said, if the structural budget was sound and the government focused on achieving full employment, the debt issues would “solve themselves”. Given the 10-year bond rate is just 1%, growth of 4.5% would help bring debt down quickly.

Debt and the speed with which economic supports are withdrawn, such as free childcare, jobkeeper and the coronavirus supplement to unemployment benefits, are set to dominate the political debate.

Labor shadow treasurer, Jim Chalmers, said the comments show treasury does not agree with the prime minister that the economy will “snap back any time soon”.

“Not all parts of the economy will recover as quickly as we’d like and that means unemployment will be higher for longer,” he said.

“Support could be better targeted, or tapered, but it shouldn’t just ‘snap back’ on an arbitrary timeline which doesn’t reflect the reality in workplaces and communities.”

The government has stressed the supports are temporary, while some MPs have called for jobkeeper to be wound back in line with businesses reopening.

The Labor leader, Anthony Albanese, has warned Labor will inherit a “fiscally constrained” environment if it wins the next election. The committee chair and shadow finance minister, Katy Gallagher, has called for an investigation into government debt. The Greens want the government to borrow more to fund the recovery.

Kennedy said the “demand confidence” of businesses and households would be the key issue that determined whether Australia experienced a V- or U-shaped recovery, but it was “very hard to determine” whether consumers would flock back to shops and cafes now restrictions were easing.

Kennedy said he was not necessarily predicting a V-shaped recovery but “if the government responds well with its fiscal levers” Australia needn’t experience an L-shape, associated with sustained depression.

Treasury officials revealed 900,000 businesses covering more than 6 million employees were enrolled for jobkeeper wage subsidies, and 1.65 million had applied for early access to $13.2bn worth of superannuation.

Labor seized on the figures to argue that workers accessing their retirement savings was the largest single component of economic support.

Kennedy said the Treasury review of jobkeeper would consider whether some industries needed the payment for longer, and the “taper rates” and incentives, in terms of how the wage subsidy interacts with the jobseeker unemployment benefit.

But he warned that both jobkeeper and the corona supplement on jobseeker were “designed to be temporary schemes, and I think rightly so”.

Officials from the Fair Work Commission told the committee it had received the biggest spike in unfair dismissal claims in its history. The attorney general department’s deputy secretary of the industrial relations group, Martin Hehir, said this was unsurprising given the “unprecedented” downturn due to Covid-19.

The commission’s general manager, Bernadette O’Neill, revealed it had received 323 disputes related to the jobkeeper program, with directions standing workers down, requests to change hours of work and to take annual leave the biggest causes of dispute.

On Thursday the attorney general, Christian Porter, announced an urgent process of consultation to respond to the federal court’s Rossato decision – that employees described as casuals could be owed further entitlements if they performed regular, permanent work.

Porter confirmed that if the labour hire firm WorkPac appealed against the decision, the federal government would intervene on its side, and did not rule out legislation to overturn its effect.

Porter flagged one possible solution would be to give “greater clarity and universality” to the right of casuals to request their employment be converted to permanent work.