Back in the shocking days at the beginning of the Covid-19 crisis the federal government moved quickly to enable cash-strapped Australians to pay for the basic necessities of life.

Those measures not only kept families and individuals afloat, they kept the economy alive.

Now with more than four years since those actions were taken research group e61 Institute has looked at their efficacy and found that the controversial early release of superannuation was the least effective measure.

Available support

E61 looked at three government support measures, the $550-per-fortnight JobSeeker payment (JSP) added to the incomes of those on unemployment benefits, the $750 Economic Support Payment (ESP) and the Early Release of Superannuation (ERS).

ERS initially allowed those in straitened financial situations to take out $10,000 in super in 2020.

The figure was doubled with another $10,000 allowed in 2021, however e61 looked only at the first withdrawal.

The two direct payment measures, the JobSeeker boost and the ESP had the strongest immediate effects on the economy.

The ESP resulted in a spending boost of 70 cents in every benefit dollar in the first fortnight of payment, while the JSP saw people spend 58 cents in every dollar of the boost.

ERS, meanwhile, delivered only 31 cents in the dollar.

Highly effective

E61 found that  income support boosts during the pandemic were highly effective overall. The payments stimulated spending, reduced financial stress and improved wellbeing.

However the ERS was not as effective in achieving all three goals because less of it was spent quickly.

Not all the spending went to what could be considered the necessities of life.

The JSP and ESP increased recipients’ spending on essentials such as groceries, but also discretionary items, such as gambling, and did so within just a few days of the payments.

“Our research suggests that in terms of stimulating spending and improving wellbeing, the JobSeeker supplement was the most effective economic support payment deployed during the Covid-19 pandemic,” e61 research director Dr Gianni La Cava said.

Spending stimulated

That result is not surprising given that JSP recipients tend to typically be low income and cash-constrained – those most likely to spend additional income. The payment continued into 2021.

The JSP quickly improved self-reported life satisfaction and delivered an improved sense of wellbeing.

“It helped 32,000 more people to pay their bills – and that improvement took place during an economic downturn,” e61 found.

In contrast, ERS made no material improvements to individual wellbeing, the report found.

“Recipients spent the JSP Supplement and ESP quickly, with 20 to 25 per cent of each payment spent on the day it was received, while the ERS was spent more gradually over the first fortnight,” La Cava said.

Overall significant numbers of people gained benefit from Covid support measures.

Between April and June 2020, e61 estimated about 4.9 million people received the $750 ESP, while 2.5 million received the $550 fortnightly JobSeeker boost.

Not-so-super effect

About 2.4 million people applied for early super release with an average of $8223 withdrawn, somewhat below the maximum amount allowable of $10,000.

The super release scheme, because of its high limit, was estimated to have created up to $6.3 billion of extra spending between April and June 2020.

The ESP delivered $2.7 billion and JSP $4.2 billion so when put together they were larger than the ESR scheme.

Overall e61 found the ERS limited in its effectiveness as an economic support measure because it was seen as “too broad”.

That meant it went to too many people who did not need to spend it immediately.

Long-term losses

It also undermines retirement saving in the longer term.

Data from the Association of Superannuation Funds of Australia produced in 2022 estimated that withdrawing $10,000 from your super at the age of 30 could cost you more than double that in retirement – a possible loss of $21,516.

For those who took the maximum $20,000 out over 2020 and 2021 the situation is worse.

APRA figures show 3.46 million people took $36 billion out of super in that period.

That could undermine a retirement balance by $69,300 for a 30-year-old according to Treasury.

Super Members Council (SMC) estimates the figure could be as high as $93,600.

Higher pension costs

Research from SMC  found that early release during Covid “will cost taxpayers $85 billion mostly due to higher pension costs,” SMC CEO Misha Schubert said.

That result would be driven by the need to pay higher pensions to those who reduced their retirement balances with withdrawals.

For the average 20-year-old that will result in extra tax payments of $3000 over a working life, SMC found.

“These are the devastating consequences of schemes that break super’s preservation rules,”  Schubert said.

“People are left with far less money at retirement, and the next generation – our children and grandchildren – will
have to pay higher taxes to pick up the bill for higher pension costs,” Schubert said.

The New Daily is owned by Industry Super Holdings