No Australian Government has ever spent $130 billion so quickly. When the Prime Minister announced the Government would subsidise 6 million jobs for 6 months to the tune of $1,500 a fortnight, the nation’s economists were left speechless.
In ordinary times, there wouldn’t be a lot of support for a $130 billion wage subsidy. But these are no ordinary times. Whole sectors of the economy have shut down, either directly as part of the public health response to the pandemic, or indirectly as part of a wave of knock-on effects.
The JobKeeper wage subsidies give direct support to the worst-affected businesses and jobs, helping to keep the economic damage to a minimum.
The JobKeeper package is not perfect. But it’s a far better response than we had feared. It will help keep the Australian economy afloat over the next 6 months, putting it in a position to bounce back when public health officials deem it safe to reopen for business.
Supporting both workers and firms
The package has three key features:
- Businesses get $1,500 per fortnight per worker (only those who were employed on March 1 are eligible and short-term casuals and some visa holders are excluded).
- The employer must keep the worker on the books and pay them at least $1,500 per fortnight.
- And the scheme only applies to businesses with revenue falls of at least 30 per cent (or 50 per cent for the largest businesses, and banks are excluded).
To be effective, the package has to deliver on three goals: to support workers’ incomes through the crisis; to keep workers attached to firms, preserving as many job-specific skills and as much know-how as possible; and to prevent the wide-scale failure of businesses, which could turn a short and sharp recession into a long and painful depression.
Importantly, this means that if the scheme is working well, both workers and firms will be getting something out of the deal.
At firms that would otherwise have shut down, workers will benefit considerably. The $1,500 JobKeeper payment will give them more than the JobSeeker payment they would receive if laid off. And for the 30 to 40 per cent of workers otherwise earning less than $1,500 per fortnight, the JobKeeper payment will give them a pay rise.
The Government has pledged that at least two weeks of paid annual leave will be protected, limiting the ability of firms to ask their employees to take leave while on JobKeeper and thereby boost their bottom line. But pay might still be cut for workers who were previously earning more than $1,500 per fortnight.
Exactly how this plays out will depend on the labour market. On one hand, these workers have a lot of bargaining power because their employment comes with a big subsidy that would not accrue to any new hire. On the other hand, alternative jobs might be few and far between.
Regardless, even if their pay is reduced, their situation is much better than under the alternative, which is going onto a lower JobSeeker payment. And to the extent that cutting pay helps to keep the firm viable, it will secure a job for them on the other side.
The flip side is that if a business stays open, it will get the benefit of its employees’ labour for free or at a big discount. Some might call this corporate welfare. But this is a feature, not a bug.
A key objective of the program is to plug the hole in firms’ revenues to prevent them from going under. In addition to payroll, businesses also have rent and other overheads they need to cover. Sharing in the benefits of the wage subsidy helps them cover these costs.
These businesses would be viable if it weren’t for the necessary public health measures currently being taken. Allowing them to fail would mean the pointless destruction of valuable resources.
Inevitably crude, but refinements could be made
The wage subsidy is somewhat crude and inevitably there will be some waste. There might be some firms that are given more money than they need to stay afloat.
Given enough time we could devise a more targeted, less wasteful scheme. But we don’t have that time. The economy has never experienced a contraction so rapid. We need this done fast.
But there are some simple refinements the Government could still make, even after the legislation is passed. Almost all of the details are implemented via regulation or “legislative instruments”. This gives the Treasurer substantial discretion to alter the eligibility requirements at a later date.
In particular, we’d like to see short-term casuals and visa holders included, which would help these people and broaden the benefits to the economy.
The JobKeeper program cannot prevent a serious contraction in the Australian economy. The economy cannot properly recover until the pandemic is sustainably brought under control. But the JobKeeper program gives us a very good chance to bounce back when it is.
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