Young people facing pay drop of $5000
University graduates and school leavers can expect to take a $5000 hit to their starting salaries next year as a result of COVID-19 amid warnings a "lost generation" could be scarred for life.
Treasurer Josh Frydenberg has warned the scarring effect of the recession could last for years on young people and it's one of the reasons why he's bringing forward tax cuts in the budget.
As revealed by news.com.au on Friday, the Morrison Government is planning to not only bring forward tax cuts scheduled for 2022 but backdate them to July 2021.
That means more money in the pockets of workers as soon as the legislation passes Parliament and the Australian Taxation Office can adjust the tax tables.
But it won't come close to compensating younger workers for the hit to starting salaries based on Treasury's predictions.
In an interview with news.com.au, Mr Frydenberg said the impact on wages would be significant and long-lasting.
"For young people, it's the Treasury's estimate that young people will be earning on average about eight per cent less in their first year in the job market as a result of COVID. And even in five years' time they will be earning about 3.5 per cent less,'' he warned.
According to Graduates Australia, the average starting salary for university graduates is $65,000. Based on that figure, an 8 per cent reducing in starting salary would be around $5000.
The fast-tracking of tax cuts will deliver that worker tax relief of around $1080, which will still leave younger workers $4,000 a year worse off on average.
"This is what we are in. So what we are really focused on is getting people back to work to avoid what economists call the scarring effect,'' Mr Frydenberg said.
"There's going to be, obviously, more people that may study a bit longer. But what we need to do is get more people into work."
One reason why wages will remain lower is that unemployment is higher and more people will be competing for jobs.
The official unemployment rate is 6.8 per cent but was forecast to rise to 10 per cent as a result of the Victorian lockdown.
Mr Frydenberg said the updated forecasts in the budget are a little rosier but unemployment is still forecast to rise.
"I subsequently said after the situation in Victoria that it would reach 10 per cent unemployment. What we will print in the budget is a number lower than 10 per cent,'' he said.
"But it is rising and that's because of Victoria and the increased participation. In terms of the effective unemployment rate, as a result of COVID it got to 1.3 million.
"Of that 1.3 million, we know that 760,000 have now gone back. So that's about 60 per cent. Of those who actually lost their job, the actual unemployed 870,000 lost their jobs but 460,000 are now back which is 53 per cent."
While women and young people were hardest hit by the shutdowns in retail and hospitality there are also promising signs they are bouncing back faster.
"Women lost 54 per cent of jobs lost but they are 60 per cent of the jobs that have come back,'' Mr Frydenberg said.
"Young people aged 15 to 24 were 38 per cent of the jobs lost and now they are 39 per cent of jobs gained. So women and young people were hit the hardest but there are some encouraging signs. They are recovering faster."
Labor's treasury spokesman Jim Chalmers said the test for the budget was to ensure a 'lost generation' did not incur lifelong impacts as a result of the recession.
"This is an incredibly important budget. It's framed in the teeth of the deepest, most damaging recession we've seen in Australia for almost 100 years,'' he said.
"At risk here is a lost generation of Australian workers sacrificed to the first recession in this country in three decades.
"We can't allow the only legacies of this recession to be a lost generation and more than a trillion dollars in debt racked up by this Government. That's what is at stake here as the Government."