It’s been almost 30 years since Australia last experienced a recession and almost 10 years since the country recorded a negative GDP growth, which was back in 2011 when the Queensland flooding and Cyclone Yasi hit. With the latest downturns in Australia’s quarterly GDP reports, as well as the economic effects of the pandemic, the future Read More…
Should JobKeeper be extended?
Fri 5 June 2020 - 6:55 amFeatured | Finance
JobKeeper is the definition of policy made on the run. At the time, it was very important to roll something out quickly to cushion the full brunt of the economic fallout of COVID-19.
However, now that the scheme has been running for a few weeks, and with recent developments around the scheme’s true cost, there are calls for the scheme to be extended.
What is JobKeeper?
The JobKeeper scheme was designed to help businesses affected by COVID-19 to cover the costs of their employees’ wages in order to prevent wide scale job losses.
Eligible businesses can receive and forward on $1,500 per fortnight per employee for up to 6 months. The scheme in its current form ends at the end of September.
How much does the scheme actually cost?
When JobKeeper was announced in late March, the government estimated the scheme would cover more than 6 million workers and cost $130 billion.
As it turns out, Treasury estimates were incorrect. The scheme in its current form will actually only cover about 3.5 million workers at a cost of $70 billion. That’s a $60 billion shortfall.
According to the government, the miscalculation was a result of reporting errors by about 1,000 businesses enrolling in the program. Most commonly those businesses reported the dollar amount of the assistance they expecting to receive, instead of the number of employees that were eligible (for e.g. 1,500 instead of 1 or 3,000 instead of 2).
Is there an opportunity to use the $60 billion shortfall to extend the scheme?
Some commentators including the Opposition, unions and industry groups are now calling for the JobKeeper scheme to be expanded to accommodate groups which previously haven’t been eligible. This includes casual workers employed for under 12 months, migrant workers and those on temporary visas (excluding New Zealanders), higher education workers and aviation employees.
But there may also be an opportunity to extend the length of the scheme. This would help businesses which are experiencing a delay in losses and may only be able to claim JobKeeper for a shorter period, if at all.
It would also ensure there isn’t a big increase in further job losses. If the tap is switched off in September it could have implications for unemployment. However, even if JobKeeper isn’t extended, other measures which are targeted at key industries such as hospitality could help.
Should everyone who is currently eligible still receive JobKeeper?
If the scheme is expanded or extended, there may be an opportunity to further refine the scheme.
Given the $1,500 fortnightly payment for staff is the fixed minimum amount per employee, some employees (especially part-timers) are actually now earning more. This loophole could be closed if needed. But before the government rushes to correct this, they will need to investigate the implications of doing so. The more money households have at their disposal, the greater the stimulus impacts for the economy.
A similar loophole was closed In April. Full time students aged 16 and 17 years old who satisfy the JobKeeper eligibility criteria, will no longer be eligible unless they are financially independent.
When will we know whether the scheme will be extended?
Treasury will review JobKeeper at the end of July. The government has acknowledged that Australia will still face economic challenges after September, but has fallen short of promising an extension. The government has indicated however that some sectors such as tourism or others particularly dependent on international borders may require additional help.
Despite the government’s reluctance to extend the scheme, it will all come down to the state of the economy come September. JobKeeper has done a good job of creating confidence and buying businesses and employees time. However, if it looks like unemployment numbers are on the rise once the scheme ends, it seems likely the government will intervene either by extending or altering the scheme, or by investing in other stimulus measures.
N.B: At the time of writing, this advice was given on current circumstances. This may change as circumstances or government advice changes
David Hancock is a director and Senior Financial Planner at Montara Wealth. His role is to oversee the running of the business and ensure the delivery of exceptional service and strategic based advice to clients. David is well known for developing strong long-term relationships with clients and is passionate about helping them identify and implement life changing financial strategies.