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JobKeeper assessment: Treasury report released

Treasury has released the Independent Evaluation of the JobKeeper Payment Final Report. The report considers both the impact and processes of JobKeeper. In line with its terms of reference, the evaluation assesses the effectiveness of JobKeeper in achieving its objectives. It also records lessons learned from the design and implementation of JobKeeper, with a view to informing future policy responses.

JobKeeper was a central pillar of the policy response in Australia to the COVID-19 pandemic. It was a wage subsidy and income support program announced on 30 March 2020, as the third instalment in a series of economic support packages introduced in the space of three weeks during March 2020 while the crisis was unfolding rapidly.

Modifications to policy design, including changes to eligibility criteria and the payment rate and structure, were made following a three-month review.

JobKeeper remained in place until 28 March 2021.

Stabilised uncertainty

JobKeeper provided certainty during a crisis. The announcement of JobKeeper on 30 March 2020 had an immediate effect. Business and consumer sentiment partially reversed their “drastic” declines. Numbers of “job separations” fell sharply and within weeks were below pre-pandemic levels. Applications for income support peaked in the week that JobKeeper was announced.

Preserved employment and prevented large scale business failures

Take-up of JobKeeper was high. It provided support to around four million employees – almost one-third of Australia’s pre-pandemic employment population – and around one million businesses. Credible estimates suggest that JobKeeper preserved between roughly 300,000 and 800,000 jobs, or around 2.5% to 6% of pre-pandemic employment.

High cost

While there were important benefits associated with JobKeeper, there were also significant costs. The fiscal cost of JobKeeper was significantly frontloaded in the first six months. The economic cost, while relatively small, became more significant in the later stages of the program.

With a total cost of $88.8 billion, JobKeeper was the one of the largest fiscal and labour market interventions in Australia’s history. The initial six months of the program cost approximately $70 billion. The first and second three-month extensions cost around $13 billion and $6 billion respectively.

Effective roll-out, low fraud

JobKeeper was implemented with incredible speed and was well managed. In the circumstances, implementation struck an appropriate balance between rapidly deploying support and managing risks of error and fraud.

The incidence of fraud was low. The estimated payment gap for JobKeeper was 2.4% – smaller than for other ATO-administered programs and taxes such as the cashflow boost, GST tax receipts and large corporate groups income tax.

Effective cross-agency collaboration

Cross-agency collaboration and leveraging of pre existing relationships “was a strength of the design and delivery of JobKeeper”. The report goes on to state that “there would be benefit in establishing an emergency committee of key government agencies that could be activated to coordinate economic policy during an economic crisis”.

No more flat payments

The report states that a tiered payment structure, or one that is proportionate to previous earnings, is better targeted than a flat payment. Authorities should consider the investment required to enable a payment that is proportionate to earnings.

The flat payment of $1,500 per fortnight during the first phase of JobKeeper provided certainty, simplicity and clarity for both employees and employers. It also reduced risks associated with the speedy implementation of JobKeeper. Some stakeholders argued that the flat payment was unfair, in the sense that those who previously worked very few hours received the same payment as full-time workers.

The report states that the flat payment was also inefficient. It resulted in around 11% of recipients receiving higher payments through JobKeeper than their pre-pandemic earnings. This may have “disincentivised” returning to work or increasing work hours during the economic recovery.

A two-tiered payment was introduced in the extension phase of JobKeeper, such that those working fewer than 20 hours per week received a lower payment than others working more hours. The change recognised and partially addressed the issues with the flat payment. It also reflected improved confidence in the system and data used to administer JobKeeper.

Narrow focus and exclusions ineffective

Narrow recipient eligibility and exclusions reduced the effectiveness of JobKeeper and had negative economic consequences.

JobKeeper excluded some employees and employers. Exclusions included casuals who had been in their job for less than a year, temporary migrants, foreign governments and their agencies and local government entities.

Exclusions based on employee characteristics such as being a short-term casual or temporary migrant worker compromised the efficacy of JobKeeper and “led to worse outcomes”. In particular, the exclusion of short-term migrants from JobKeeper likely reduced the productive capacity of the Australian economy and constrained recovery in some sectors. The exclusion of entities owned by foreign governments resulted in some otherwise eligible Australian workers missing out on JobKeeper support, which was not in keeping with the objectives of the policy.

Transparency and accountability needed

The report states that transparency requirements should be built into policy design to “build public trust and enable appropriate scrutiny of public expenditures”.

JobKeeper did not include in its design a public registry or disclosure requirement for entities that received the payment. Some information became available over time, but disclosures were restricted to listed companies, which comprised a small proportion of total JobKeeper entities (around 593 out of about one million) and payments ($4.3 billion out of a total of $88.8 billion).

Qantas is not mentioned in this context.

Limited use of such schemes in the future

JobKeeper was a policy designed for an extraordinary situation. While it was justified during the pandemic, such a policy should be considered “only where there is an exogenous and temporary shock with substantial economy wide implications”.

A JobKeeper-type wage subsidy should be reserved for a macroeconomic crisis and is not appropriate for industry or region-specific shocks or downturns in Australia, the report says. Some of the key benefits of JobKeeper identified in this evaluation, including economy-wide stabilisation and reducing macroeconomic uncertainty, are not relevant in these circumstances.