Tue Jul 21

how they'll wind down and better target JobKeeper

Written by: Steven Hamilton, Visiting Fellow, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University

The government’s revised JobKeeper scheme, announced today, fixes many of the flaws of the original design, providing support for businesses continuing to struggle as the economy recovers and for those thrust into renewed uncertainty amid isolated outbreaks and second waves.

Importantly, both JobKeeper ^[1] (the A$1,500 per fortnight payment to hard-hit businesses for each worker they keep on the job) and the coronavirus supplement ^[2] (the $500 per fortnight top-up to the JobSeeker unemployment benefit and a range of other payments) will continue as they are until they were due to expire in September, suggesting the government has decided the economy wasn’t strong enough for an early withdrawal.

Beyond that, they will continue at lower rates, for JobKeeper until the end of March, and for the coronavirus supplement until the end of the year.

The extended JobKeeper will be more modest, better targeted, and better in tune with the needs of the businesses receiving it. But it remains to be seen if even this withdrawal of fiscal stimulus will be too rapid for what looks to be a fragile economic recovery.

Rolling eligibility

The big change to JobKeeper will be a move to rolling eligibility. The original scheme was a one-shot game. You applied, indicated that you expected to lose 30% of your revenue (50% for big businesses) and got JobKeeper for the full six months.

Given many of the businesses that qualified (and over one half of all businesses covering about one third of all workers did) will have been impacted only mildly or for only a short time, many will have in fact profited handsomely from the design as it was.

To prevent this profiteering, the scheme should always have retested eligibility every month or quarter. As it is, all businesses report their actual and expected revenues to the Tax Office every month, but this doesn’t affect their payment.

From the end of September, organisations seeking JobKeeper will be required to reassess their eligibility with reference to their actual turnover in the June and September quarters of 2020. If they had a big enough decline, they will get to keep JobKeeper for the rest of the year.

If they want it beyond this year until the end of March 2021, they will need to reassess their eligibility based on their actual turnover in the previous three quarters.

Continuing into 2021

The original scheme was cobbled together in late March before the first wave of coronavirus had peaked, and before we knew how long it would last or what damage it would wreak. For much of the country, the fallout was more modest and shorter-lived than had been expected.

But the full-blown Victorian second wave and the ember attacks in New South Wales highlight the precarious nature of the recovery.

And with the virus still raging across much of the world, international borders may remain closed until mid-2021, which will devastate sectors of the economy such as tourism and education.

Moreover, withdrawing all the fiscal support at once — the so-called “fiscal cliff ^[4]” — might have put our fledgling recovery at serious risk.

Extending JobKeeper by another six months but at a more modest level and with tighter targeting is prudent and pragmatic, and far better than driving off the fiscal cliff.

As businesses recover, they will organically drop out of the scheme, keeping support flowing to those worst-affected into 2021.

But this still represents a large withdrawal of stimulus from the economy, reducing the incomes of many workers at a time of great fragility.

The government should seriously consider introducing alternative support measures, like broad business tax relief and cash stimulus, to further support the recovery.

Two speeds

The original flat payment structure – paying eligible businesses $1,500 per fortnight for every worker, regardless of each workers’ earnings or work hours – was always a baffling design choice.

It meant that a quarter of the workers covered got more money than they had been earning before. Unrelated to hours worked, the $1,500 per fortnight payment made it hard to entice casual workers to work more hours.

The updated two-tier structure along the lines of New Zealand’s will offer $1,200 per fortnight for all eligible employees who were previously working 20 hours or more per week, and $750 per fortnight for employees who were previously working less than 20 hours a week.

After January 4, those payments will shrink to $1,000 per fortnight and $650 per fortnight.

Remaining flaws, but no dealbreakers

There is no doubt JobKeeper has propped up some businesses that were not viable even before the recession. When it comes, this “creative destruction” will be one of the few silver linings of the recession, something Australia has missed out on for three decades.

The lower payment rates will reduce but not eliminate support for zombie firms. This adds to the case for not extending the scheme beyond its new March end date, so long as by then viable businesses can stand on their own feet.

An oddity is that after the changes the payments to people on the JobSeeker (Newstart) and other payments including Youth Allowance, Farm Household Allowance, Parenting Payment and Special Benefit will be higher than those under JobKeeper to people working up to 20 hours per week.

JobSeeker with the coronavirus supplement will fall from $1,100 to $800 a fortnight, while the JobKeeper payment for people working fewer than 20 hours a week will fall from $1,500 to $750.

On the face of it, it means that until December someone working up to 20 hours per week will get less money ($750 per fortnight) than someone out of a job and working zero hours ($800).

But it mightn’t last for long. Come Christmas, JobSeeker is set to be busted back to somewhere in the region of its present $565.70 per fortnight as the coronavirus supplement ends.

In his press conference, Prime Minister Scott Morrison held out hope of a permanent increase beyond then but offered no details. It was not a question the government was contemplating “at this point”.