Straight answers and expressions of doubt are rare things in Canberra, but Treasury secretary Steven Kennedy offered both this week.
Appearing on Tuesday before the senate committee set up to examine the government’s response to the coronavirus pandemic, his opening statement left no doubt about the scope of the crisis, here and around the world.
“We have never seen an economic shock of this speed, magnitude and shape, reflecting that this is a significant shock to both supply and demand,” he told the two senators present and the giant screens from which the committee’s other members watched remotely.
Australia will see unemployment hit 10 per cent in the next three months, Kennedy warned, citing that official figures already show job numbers have fallen starkly in some sectors – 25.6 per cent in accommodation and food services and 18.7 in arts and recreation.
Despite “direct fiscal measures” equivalent to about 10 per cent of GDP, “larger than any support package provided by government in the past 50 years”, he said, some businesses and jobs will be gone forever.
It was a sober and sobering assessment, in sharp contrast with the repeated assertions from the government he serves that the economy can quickly snap back.
“The final shape of this shock remains hard to predict because it depends on how the virus’s transmission unfolds in the face of efforts to suppress it both in Australia and overseas,” Kennedy said.
As the questions began, it became clear that as much as he and the bureaucracy had tried to prepare the country, they had struggled to keep up with developments. Maybe they could have done things better or sooner, he admitted, particularly when it came to the biggest of the government’s spending measures, the $130 billion JobKeeper package.
Kennedy didn’t directly say they had left it too late – the JobSeeker announcement came a week after the government announced it would double unemployment payments – but the inference was clearly there to be drawn.
“Whether it should have been done the other way around – I guess people will make their judgement on that over time,” he said.
In order to blunt the economic impact of Covid-19, the government had three goes at delivering relief, each bigger than the one before. Its first package came on March 12, just as the number of infections in the country was beginning to rapidly climb. It totalled $17.6 billion, which looks tiny now, but, even then, there were many who questioned its size and structure.
Ross Gittins, The Sydney Morning Herald’s economics editor, wrote that not only was the initial package not big enough, it also was misdirected. More should have gone to households, but instead, “Morrison has favoured the trickle-down approach: he gives cash rebates to small and medium businesses, intended to discourage them from laying off workers…”
But businesses were not discouraged from laying off workers, and they did so in droves.
It took 10 days for government to come back with a second package, almost four times as big as the first. The headline item was a decision to effectively double welfare payments for job seekers, to $1100 a fortnight for the next six months.
The government had resisted calls to increase this payment for six years. In 2016, the then Social Services minister, Christian Porter, said it was a “design point” of the system that recipients should find it “challenging to subsist”. But suddenly, in crisis, the punitive principle no longer applied.
“I suspect,” says Labor’s Industrial Relations spokesman, Tony Burke, “that was about them suddenly confronting the realisation that there were going to be unemployed people who were people they knew.”
Giving money to the neediest is nonetheless a good way of stimulating the economy. And in planning for the welfare increases, the government and the Treasury knew the economy was about to take another hit.
At the same time he announced the government would extend welfare benefits, the prime minister announced it also would dramatically extend the lockdown of the country. Pubs and clubs, cinemas and all other entertainment venues would have to close. Restaurants and cafes were restricted to takeaway only; sporting venues and places of worship were to shut down.
The following day, March 23, was arguably the most chaotic and dispiriting of the entire crisis thus far. As businesses around the nation followed the order to shut down, thousands of people defied social distancing requirements and queued outside Centrelink offices. myGov crashed as nearly 100,000 people simultaneously tried to access the site. And the Covid-19 caseload continued its exponential rise.
In the parliament, the opposition parties were pressing over the sketchy details of the JobSeeker plan. And they wanted to know why the government was devoting so much money to people who had lost their jobs, rather than pouring more into wage subsidies, so more might keep their jobs.
Other countries, including Canada, New Zealand, Denmark and Britain had implemented variants of job subsidy schemes. The British model, which paid 80 per cent of the wages of furloughed workers, up to £2500 a month, attracted the most attention.
Morrison referred to the British scheme in his response to questions, saying it had been considered but that “our Treasury actually recommended against us taking those measures, and I think that was sound advice”.
Such a subsidy scheme, he said, would require a “complete redesign of delivery mechanisms, which will take many months”, and would be open to rorting. Instead, on Treasury advice, the government was focused on access to “a strengthened safety net to support them through the many months that are ahead”.
His answer left the distinct impression that no job subsidies were in the pipeline, and that any further support would be delivered through the welfare system. The same formulation was repeated over the next week, whenever ministers were asked about the prospect of a wage subsidy.
Meanwhile, jobs kept disappearing and Centrelink continued to be deluged with applications for the increased JobSeeker benefit.
Then came the $130 billion JobKeeper package, the government’s third and largest economic response measure, and the largest single piece of spending in Australian history.
The design of the job subsidy scheme was interesting, in that it provided for a flat rate of $1500 a fortnight, regardless of whether workers were full-time, part-time or casual.
For them to be eligible, their employers had to have suffered a significant fall in turnover as a result of the lockdown – 50 per cent for companies turning over more than $1 billion, 30 per cent for those turning over less, and 15 per cent for registered charities.
Dr Kennedy told the senate committee this week that a subsidy scheme had long been under consideration. And while he confirmed Morrison’s assertion that the British model had been rejected – Kennedy suggested it perversely gave firms an incentive to stand workers down – there were good ideas to be gleaned from other countries.
“There is sometimes a little bit of advantage in going a little bit behind someone else,” he said.
The New Zealand model, which required employers to pay workers at least 80 per cent of their usual wages – while providing flat-rate weekly reimbursements of $NZ585.80 per full-time worker and $NZ350 per part-time worker – was attractive because it served to keep employees “married” to their firms. Treasury borrowed from it.
But there also was a big downside to waiting, as Labor committee member Murray Watt noted at Tuesday’s hearing. In the time between the government’s decision to increase the dole and the announcement of the JobKeeper payment, some 160,000 people lost their jobs.
The big question to Kennedy, then, was why the JobKeeper scheme was not announced in the second package, particularly given that he knew a tighter lockdown was set to be announced, which would inevitably cost jobs.
He defended the timing, saying Treasury’s view was that it was more important to “get the safety net in place first”. He also argued the second package, by supporting cash flows for business, was “in effect” a $32 billion wage subsidy scheme.
But he conceded doubt, too, saying it was “an open question about whether we should have advised on a more extensive wage-subsidy arrangement” at that time.
The design of JobKeeper appears to acknowledge the inadequacy of the two packages that preceded the scheme.
It was made retrospective, allowing employers who had let go workers at any time during the horror month of March to, as Peter Martin put it in The Conversation, “travel back in time, pay them as if they hadn’t been sacked, and nab the A$1500 per employee per fortnight payment”.
Although Kennedy accepted responsibility, others suggest it was not all down to him.
Sally McManus, secretary of the Australian Council of Trade Unions, says the unions had advocated a subsidy “way before” the inadequate second support package. “In the early meetings with employers and [Industrial Relations minister] Christian Porter, they were all completely opposed to a wage subsidy,” she says.
Instead, they were “fixated on doing it through social security … through Centrelink”.
The decision to double the dole, she says, simply sent the message to employers “that you can just let people go, and they’ll be looked after. And that’s exactly what happened.”
As the number of business closures and unemployment lines grew though, employer groups – McManus mentions the Business Council of Australia, in particular – came around. And after them, the government.
“We were surprised that they came out with that flat amount,” McManus says.
It quickly became obvious that the one-size-fits-all $1500 subsidy would lead to a large number of workers who normally earned less – in the case of some part-time and casual workers, many times less – getting a pay rise.
But the union movement was not about to “nitpick” about that, McManus says. Of greater concern to the unions, and to the Labor opposition, were those left out of JobKeeper negotiations – the one million Australians who had not been working for the same employer for more than 12 months, along with a similar number of visa holders.
The 12-month cutoff inevitably hit some harder than others. Tony Burke cites the arts and entertainment sector.
“Now, here’s the sector reportedly worth more than $110 billion to the economy, which has largely been shut down,” he says.
Because entertainers tend to move from gig to gig, from employer to employer, they won’t get the $1500 JobKeeper payment, he says. And because their income is very “lumpy”, many will also be ineligible for the $1100 JobSeeker payment.
The problem could be fixed, Burke says, if the requirement was that a person had maintained an association with an industry, rather than a single employer. The same holds for other sectors where workers move frequently.
Another anomaly relates to the higher education sector. Australia’s 39 major universities reckon they stand to lose between $3 billion and $4.6 billion in revenue, and 21,000 jobs in the next six months. Many would have qualified for JobKeeper, according to the original formula applied by the government. However, last Friday, Treasurer Josh Frydenberg changed the eligibility criteria retrospectively so that university turnover was deemed to include “core Commonwealth government financial assistance”.
Says Burke: “The tertiary sector is the only sector which has found a way to get itself within the rules, and then the government has deliberately changed the rules to get rid of them.”
The arbitrary nature of payments creates problems for private businesses, too. Those that employ significant numbers of casual staff, who normally would earn less than $1500 a week, have suddenly seen their wages bills go up, even as turnover has gone down. And because they must pay the money before they get a rebate from the tax office, many are having trouble finding the cash.
The big banks, says Peter Strong, chief executive of the Council of Small Business Organisations Australia, have been slow to provide bridging loans. It will be a long month for some small and medium-sized enterprises while they wait for the tax office to pay them back.
Indeed, many tough and uncertain months lie ahead for millions of us – employers and workers alike. But there’s really nothing much we can do but make the best of it, for Kennedy assured the senate committee there would be no fourth relief package.
This article was first published in the print edition of The Saturday Paper on May 2, 2020 as "JobKeeper: The inner workings of the bailout".
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