Benefit number forecasts and scenarios - PREFU 2020

Forecast summary

The Treasury’s Pre-Election Economic and Fiscal Update (PREFU) release on 16 September 2020 includes benefit number forecasts as part of the fiscal forecasts. This publication illustrates key benefit number forecasts presented in the PREFU 2020, as well as three different scenarios.

There is a lot of uncertainty with these forecasts given the various interactions between benefits and government interventions combined with the heightened level of economic uncertainty.

In the short-term, the number of people receiving a working-age benefit (WAB)[1] is expected to be lower than was forecast in the Budget Economic and Fiscal Update (BEFU) 2020. This is mainly because the Wage Subsidy Extension, Resurgence Wage Subsidy and the COVID-19 Income Relief Payment were approved after the BEFU 2020 forecasts were finalised in early April 2020 and are now incorporated at PREFU 2020. The support from these payments is expected to dampen the growth in the number of people receiving a WAB until they end. For most people, the support is expected to end between early September and mid November 2020.

On Wednesday 12 August 2020, Auckland moved back to Alert Level 3. As a result, the Resurgence Wage Subsidy was introduced. We expect the subsidy will help to mitigate the growth in the number of people receiving Jobseeker Support Work Ready that we would have otherwise expected for Auckland, at least until it ends in September 2020.

In the longer-term, the number of people receiving a WAB is now expected to be higher than was anticipated at BEFU 2020, mainly because the post-COVID-19 economic recovery is now expected to be more gradual.

In July 2020, 355,700 people were receiving a WAB (latest actual at the time the forecast was finalised), at 11.8% of the working-age population. We expect the number of people on a WAB to:

• peak later (in May 2021) compared to the BEFU 2020 forecasts (when the peak was expected to be in January 2021)
• dip after May 2021 as economic recovery from moving into lower alert levels improves the labour market conditions
• have another period of growth until the end of 2021 followed by a slower recovery from January 2022. This occurs because economic growth is expected to be lower than expected at BEFU 20 in the longer-run.

The expected trends in WAB numbers will also have a flow-on effect to supplementary assistance payments such as Accommodation Supplement and Special Needs Grants.

[1] Working-age benefits are Jobseeker Support, Sole Parent Support and Supported Living Payment

Forecast data

This is a high-level overview of the data used in the graphs for the benefit number forecasts and scenarios below.

Working age benefit numbers

Actual and forecast

Click to enlarge

Jobseeker Support

Actual and forecast

Click to enlarge

Sole Parent Support

Actual and forecast

Click to enlarge

Scenarios

There are three economic scenarios produced by The Treasury, which are based on how the economy may evolve differently to the central PREFU 2020 scenario. These scenarios are:

1. resurgence in community transmission
2. extended border controls
3. early recovery in service exports

We have modelled the potential impact of these scenarios on Jobseeker Support Work Ready because it is affected the most by changes in economic conditions.

Click to enlarge

Resurgence in Community Transmission

Under the community resurgence scenario, alert level restrictions escalate during the December 2020 quarter, and return to Alert Level 1 in January 2021.

The scenario is more severe than the main PREFU 2020. Further restrictions to activity mean that economic growth and recovery would be weaker than expected at the main PREFU 2020.

The peak is estimated to be at around 231,000 in February 2021, which is around 38,000 people higher and 11 months earlier than the largest peak in the main PREFU 2020 (in January 2022).

Extended border controls

Border controls are assumed to remain in place over the forecast period. Prolonged border restrictions mean that the economic recovery would be slower than in the main PREFU 2020, and it is the most pessimistic scenario in the long-term.

The peak is estimated to be around 200,000 people receiving Jobseeker Support Work Ready in May 2022, which is around 7,000 people higher and 4 months later than main PREFU 2020.

Early recovery in service exports

An earlier recovery in service exports (such as tourism) means the contraction to economic growth would be smaller than expected at PREFU 2020. The peak in the number of people receiving Jobseeker Support Work Ready is estimated to be around 193,000 people in May 2020, which is the same number of people at the peak as the main PREFU 2020 but 8 months earlier. In the longer-term, we expect around 7,000 fewer people in June 2024 compared to the main PREFU 2020 forecast mostly because the economic recovery is expected to be faster.

Table 1 – Overview of Jobseeker Support Work Ready scenarios

Note: The numbers quoted in this table use the month-average figures used in producing the expenditure forecasts. They will differ slightly from the Official Benefit Counts as used in the Benefit Fact Sheets.