Protecting mental health during periods of financial stress: Evidence from the Australian Coronavirus Supplement income support payment

Abstract

This paper investigates whether the Australian government's Coronavirus Supplement, a temporary income support payment for unemployed jobseekers during the height of the COVID-19 pandemic, protected mental health (frequency of feeling anxious or depressed during the past week) by lowering financial stress (how comfortable people are in paying for essential services). We use unique nationally representative repeated cross-sectional data on 3843 unemployed Australian adults over the period April 6, 2020 to May 10, 2021. We find that the Coronavirus Supplement payment significantly reduced reported financial stress, and lower financial stress was associated with lower mental distress. Though the Coronavirus Supplement was designed to reduce financial stress, we find the Supplement was also successful in protecting community mental health indirectly via its ability to reduce financial stress. The findings provide support for income support packages to protect mental health during economic shocks. However, transitory support measures also tend have short-lived positive effects on mental health, suggesting that more permanent income support reform may have longer-term mental health benefits.