JobKeeper extended to 2021

Prime Minister Scott Morrison announced yesterday that the JobKeeper wage subsidy payment will be extended by six months to 28 March 2021, while the temporary coronavirus supplement for those on income support will be extended until 31 December 2020.

The support package was released in March to help businesses retain staff as they bore the brunt of the economic impacts of the coronavirus pandemic.

The announcement came on the same day as Treasury released its review of the $70 billion JobKeeper payment scheme, in which it analysed the effectiveness of the wage subsidy schemes implemented in March in response to the economic devastation caused by social distancing measures brought in to curtail the spread of COVID-19.

In the review, it was found that the JobKeeper program had been taken up by more than 920,000 organisations and around 3.5 million individuals over the April-May period.

As at 23 June, payments have totalled $20.3 billion over the four payment fortnights to 24 May, equivalent to 7 per cent of pro-rata March quarter gross national income.

Furthermore, Treasury has observed that there is no evidence of widespread business closures, which are currently well below average. The review attributed this to JobKeeper and other fiscal support, bank forbearance and temporary law changes.

“JobKeeper has kept jobs in place, especially among those in ongoing full-time and part-time roles. It achieved this by providing employers a subsidy to keep on employees and reduce business costs,” the review summary stated.

However, Treasury stated in the review that while JobKeeper was designed to prioritise macroeconomic support, and speed and ease of implementation, it has a number of features that create “adverse incentives”, which may become more distinct as the economy recovers.

“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 review stated.

The review recommended that while it would be prudent to continue the JobKeeper payments, the government should consider what form it should take. Rather than targeting sectors affected by the economic shutdowns, the review recommended that the government should reassess eligibility in October based on actual decline in turnover.

“This would target the most affected businesses and would reduce the proportion of the economy at risk of the adverse incentives of JobKeeper,” Treasury said.

“This would give those businesses most affected by ongoing health restrictions and the downturn some additional breathing space to recover. It may also be appropriate at this juncture to consider reducing payments to wean off businesses from ongoing support.”

JobKeeper payment changes

In response to the review, the government has announced that the JobKeeper payment will remain available for eligible employers until 28 March 2021, but the payments will be tapered in the December and March quarters to encourage businesses to adjust to the new environment.

According to the government, this approach would support a gradual transition to economic recovery, while ensuring those businesses who most need support continue to receive it.

The new JobKeeper payment arrangements are expected to cost an additional $16.6 billion.

Further, a two-tiered payment will also be introduced from 28 September, aimed at better aligning the payment with the incomes of employees before the onset of the COVID-19 pandemic.

From 28 September 2020 to 3 January 2021, employees will receive $1,200 in JobKeeper payments per fortnight, down from the previous rate of $1,500. This will be revised down again for the March quarter, with recipients receiving $1,000 per fortnight from 4 January to 28 March 2021.

Those who work less than 20 hours a week will receive $750 per fortnight, which will be revised down to $650 from 4 January to 28 March 2021.

From 28 September 2020, businesses and not-for-profits will need to reassess their eligibility based on their actual June and September quarter turnovers to demonstrate that they have suffered an ongoing significant decline in turnover.

Organisations will need to demonstrate a significant decline in turnover in both these quarters to be eligible for the JobKeeper payment in the December quarter.

Employers will need to again reassess their eligibility for the JobKeeper payment for the March quarter by demonstrating that they have met the relevant decline in actual turnover in each of the previous three quarters ending on 31 December 2020 to remain eligible for the payment in the March 2021 quarter.

“If they do not meet the turnover test in the extension period, this does not affect their eligibility prior to 28 September 2020,” Treasurer Josh Frydenberg said.

“The continuation of JobKeeper for these businesses will help support the economic recovery and provide them with sufficient time to adjust.”

Additionally, as per the review recommendation, an independent evaluation will be conducted when the program concludes.

Yesterday’s announcement came ahead of tomorrow’s economic update, which is expected to paint a clearer picture of the full economic impacts of the coronavirus pandemic and Australia’s recession.

Treasury said it expects the official unemployment rate to be around 8 per cent in the September quarter and to rise further in the December quarter.

Mr Frydenberg said the extension of the payments recognised that the economy was still in its early stages of recovery, with a number of businesses and individuals still affected by the COVID-19 pandemic.

“The government’s focus remains on reopening the economy where it is safe to do so, but the extension of these measures recognises that some parts of the economy will continue to be affected and need continued support,” he said.

[Related: HIA welcomes new JobTrainer program]