Coronavirus: JobKeeper, JobSeeker to stay but at lower rate

Treasurer Josh Frydenberg. Picture: Dion Georgopoulos
Treasurer Josh Frydenberg. Picture: Dion Georgopoulos

The JobKeeper wage subsidy will be extended for six months beyond September but at a lower rate than currently paid, Prime Minister Scott Morrison will announce on Tuesday. The JobSeeker unemployment benefit will also stay in place, but at a lower rate and for a yet-to-be-disclosed length of time.

Treasury's review of the JobKeeper wage subsidy shows that just under 900,000 casuals and part-timers had an income boost from the flat $1500-a-fortnight payment, receiving an average increase of $550-a-fortnight more than what they were earning before. That bonus will come to an end.

The wage subsidy will be split into a two-tiered payment, with a lower rate for casuals and part-timers, and will stay in place till the end of March.

It also looks set to be based on a new turnover test, with businesses required to demonstrate an ongoing hit to turnover to qualify.

The JobKeeper wage subsidy is a flat payment of $1500-a-fortnight to all workers in businesses that qualify.

The JobSeeker unemployment supplement is a $550-a-fortnight payment, effectively doubling the unemployment benefit to $1120-a-fortnight.

Treasurer Josh Frydenberg will announce the new rates for both payments on Tuesday, July 21, ahead of a mini-budget on Thursday.

New eligibility rules for both will also apply to "ensure only those that require assistance receive it", the government says, while not disclosing details.

The new rates will apply from October, after Mr Morrison committed on Monday to the payments continuing at the current level until the end of September.

Finance Minister Mathias Cormann said the elevated payments had created "distortions" but were necessary due to the scale of job losses.

"In all of the circumstances we needed to do what we did in order to put a proper safety net under the economy," he told 2GB radio.

Labor frontbencher Bill Shorten warned businesses would shed more workers in October because of the pandemic.

But he backed the extension.

"As we have spikes in various states I think it is a sensible move to extend JobKeeper and JobSeeker," he told the Nine Network.

Mr Frydenberg will also release the Treasury review of the JobKeeper program on Tuesday.

The review says the JobKeeper payment - the largest one-off spend in Australia's history - has done its job, now supporting 3.5 million workers in just under one million businesses and preventing widespread businesses closures when the pandemic hit.

But the payment also skews incentives to work, Treasury says, citing claims that workers are refusing extra shifts or even refusing to work at all while they are on the $1500-a-fortnight flat payment.

The "adverse incentives" are likely to become more pronounced over time as the economy recovers, Treasury has warned.

"It distorts wage relativities between lower and higher paid jobs, it dampens incentives to work, it hampers labour mobility and the reallocation of workers to more productive roles, and it keeps businesses afloat that would not be viable without ongoing support," the report says.

As the economy began to recover, the scheme would hold back recovery by discouraging people from working.

"Several industry stakeholders advised the review team of instances where part-time workers have been reluctant to do additional hours of work more commensurate with the JobKeeper payment, as well as instances where stood down workers have been reluctant to take on any work hours as businesses have begun to re-open in recent weeks," the Treasury review says, while adding: "No quantitative evidence has been presented on either of these matters."

The JobSeeker unemployment benefit, at $1120 a fortnight, might also be a disincentive to work, effectively forming a new "reservation wage" or wage floor.

While unemployment is high, the negative impacts of the wage subsidy and the higher unemployment benefit would be "modest", but they could rise over time, Treasury says, citing those impacts as the key rationale for ending the wage subsidy at some point.

"An important part of the process of recovery from recession is to let economic resources flow to their most productive use.

"In the labour market this occurs through people switching jobs, moving from businesses that are struggling to those that are growing. JobKeeper can hamper this process."

Finance Minister Mathias Cormann said those disincentives had fed into the government's decision.

"We ... want to ensure that ultimately we can transition businesses back into a situation where they are able to pay for the wages of their employees out of their income," he said.

Treasury rejected the idea limiting JobKeeper to specific industries most badly hit, saying it was too difficult to define those sectors in advance and to define boundaries between sectors.

"A better approach to sectoral targeting would be to maintain JobKeeper but reassess eligibility in October based on actual decline in turnover," Treasury said.

Treasury's suggested turnover test remains under wraps.

Treasury also advised the government that it might also be appropriate "to consider reducing payments to wean off businesses from ongoing support". The government will reduce the payment, but again, no specific numbers will be released till Tuesday.

Mr Frydenberg said the $70 billion JobKeeper program had prevented widespread business closures and put a brake on job losses.

"JobKeeper has been an economic lifeline to millions of Australians and that lifeline will be extended for those businesses that need it most," he said.

Treasury found the 960,000 businesses whose wages bill was being subsidised through JobKeeper had seen an average fall in turnover of 37 per cent in April compared to April last year.

The industries with the biggest number of people on JobKeeper were construction, professional, and scientific and technical services. The industries with the biggest proportion of workers on the payment were accommodation and food, other services, and health care and social assistance.

JobKeeper is being paid to 30 per cent of private-sector workers.

The review shows that most part-timers received an income boost from the JobKeeper payment, with part-timers making up 32 per cent of private sector jobs, and one-quarter of JobKeeper recipients receiving an increase.

Deloitte Access Economics said 240,000 businesses would be at high risk of failure if government supports ended in September. The number is nearly 10 per cent of all Australian businesses, the economists say.

Not only was JobKeeper scheduled to end on September 27, but many rent and loan deferrals were set to end at the same time.

"This will put enormous pressure on the viability of many businesses, and the economy as a whole," Deloitte partner Kristian Kolding said.

The shockwaves would be felt across banks, suppliers and utilities firms.

The businesses most at risk were in hospitality, professional services and transport businesses where two in five businesses had cash reserves that would last less than three months. Hospitality is highly reliant on JobKeeper, with perhaps three-quarters of businesses using the scheme.

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"Smaller businesses, with their higher fixed costs, smaller cash reserves and barriers to lending, will find it more difficult to survive," Mr Kolding said.

The ACT was relatively sheltered, with 30 per cent of businesses using the JobKeeper wage subsidy in Canberra, compared with 36 and 37 per cent in Victoria and NSW.

Mr Morrison said on Monday that support for businesses and the economy would have to be "a series of phases and how many phases there are it's difficult to say because there are so many uncertainties associated with COVD-19".

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This story JobKeeper, JobSeeker payments to continue at lower rates first appeared on The Canberra Times.

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