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As the government tries to justify how its JobKeeper forecast was out by $60 billion, two economists who questioned the initial figures explain what might be next for Australia’s economy. By Karen Middleton.

Economic fallout of the $60b JobKeeper error

Prime Minister Scott Morrison addresses the media after a national cabinet meeting on May 15.
Credit: Rohan Thomson / Getty Images

When the premiers and chief ministers received briefing documents on the rate of JobKeeper applications at a national cabinet meeting a month ago, some of them queried the figures.

Familiar with the size of their own economies, they studied the number of businesses in each jurisdiction and said the figures couldn’t possibly be right.

Treasury produced a revision but it was still incorrect. The details were finally fixed on the third attempt.

Inside the agencies making policy at breakneck speed during the Covid-19 pandemic, the commonsense alarms that are rung by abnormally large or small numbers have not always been sounding. Figures that are literally off the charts can very quickly become unsurprising to those who compile them.

But the minor mistakes in the national cabinet briefing notes paled beside the $60 billion error Treasury and the Australian Taxation Office unveiled in a joint statement on Friday last week. They confessed the declared number of JobKeeper payment recipients was out by 50 per cent: three million, not the six million the government had claimed, let alone the 6.6 million the Treasury had forecast. That meant the program would cost only $70 billion, not $130 billion as earmarked.

The agencies were quick to explain that the mistaken number came from a preliminary-indication online form that some businesses had completed incorrectly.

Instead of declaring the number of employees for whom they would claim the $1500 fortnightly payment, about 1000 businesses had nominated the dollar amount. In half of those cases, they put “1500” instead of “one”.

The ATO told The Saturday Paper this week that some of the remaining 900,000 businesses had also rounded up the likely number of claimants.

Those figures were always intended as an early indicator, with employers then completing formal applications containing claimants’ details.

Given the escalating crisis, the ATO prioritised checking eligibility and making payments, not checking actual numbers against the initial indications.

In their joint statement, the two agencies emphasised that the mistake had not affected anyone’s eligibility or the amount paid out – because those were based on the second lot of information.

But the indicator figures were being fed through to Treasury and the executive government.

By coincidence, those indicators matched Treasury’s forecast, which reinforced a modelling process that had relied on information coming through chief medical officer Brendan Murphy’s Australian health protection principal committee (AHPPC).

A taskforce of epidemiologists had prepared the AHPPC’s modelling to estimate future infection rates – the so-called “curve” Australia faced. The effectiveness of social distancing would determine the steepness of the curve and whether worst-case health or economic scenarios would be realised. Thus far, they haven’t been.

The resulting economic modelling informed what Prime Minister Scott Morrison and Treasurer Josh Frydenberg told the nation about the JobKeeper plan. It is not clear if there were other scenarios and, if so, who decided to use a worst-case figure.

“I think it’s very unfair to blame Treasury, to blame the Tax Office,” Frydenberg told ABC Radio National, the night the mistake was announced. “What has occurred here has not had the impact of underpaying or overpaying. What this has just meant is – in relation to the forecast that Treasury has made – that the number of people covered by the program is less, and therefore the spending by the taxpayer is going to be substantially less than was otherwise thought.”

Treasury officials were using the higher figure the previous morning, the same day the mistake was reported to the government.

Last Thursday, May 21, deputy secretary Jenny Wilkinson gave the senate committee examining the Covid-19 response a JobKeeper update.

With what turned out to be considerable prescience, independent senator Jacqui Lambie asked if Treasury had revised its advice to the government on the numbers. Had anything changed?

“No, we haven’t revised that advice,” Wilkinson responded. “… We haven’t revised our estimates. The numbers are increasing over time, as I say, from one day to the next.”

Within hours, Wilkinson was telephoning the treasurer to tell him those registration figures were completely wrong – and the adopted forecast was clearly wrong, too. As mistakes go, it was huge, coming in the largest-ever government stimulus program.

“When JobKeeper was designed and first costed, the uncertainties were extreme,” Prime Minister Morrison told the National Press Club this week, saying he liked it when Treasury was cautious. “… It’s been said to me, if you’re going to miss the mark, it’s better to miss the mark on the right side of the line.”

It wasn’t just a throwaway remark. There is a fiscally conservative philosophy that underpins Treasury’s activities generally.

“Treasury culture will always say it’s better to overestimate the ticket and come in under,” one economist observed this week, adding: “They would have preferred to overestimate by a little less.”

Treasury is blaming the ATO for the miscalculation.

“This reporting error has come to light as the ATO and Treasury have been analysing the amounts being paid out under the scheme, reconciling these with the estimates provided by enrolled businesses of the likely number of eligible employees,” their joint statement said. “It was not picked up by the ATO earlier as their primary focus in the first fortnight of JobKeeper payments was on [prompt payment and eligibility].”

The statement said businesses’ initial estimates were not linked directly to the payments and so “were not as carefully analysed”.

On Friday afternoon, the ATO’s second commissioner of client engagement, Jeremy Hirschhorn, was sent out to explain, revealing the problem had emerged days before.

“At the start of this week, identifying that there was a discrepancy between the two numbers – the 6.5 million estimate and the three million or so applications we had already finalised and [were] paying out – we decided to investigate,” Hirschhorn told journalists, saying the mistake was due “almost entirely” to employers misreading the first form.

He took two questions but wasn’t asked why, if the ATO had begun investigating on Monday, it did not notify Treasury until Thursday afternoon.

But while much focus of the past week has been on the $60 billion error, the greater impact arguably came from the similar-sized forecast that preceded it.

The forecast the government adopted – that 6.6 million employees would receive the payment – was made in Treasury and first revealed publicly when the prime minister announced the JobKeeper payment on March 30.

The online enrolment process did not begin until April 20.

Writing on The Conversation last month, Melbourne University economists Professor Roger Wilkins and Professor Jeff Borland queried the Treasury forecast, which suggested six in every 10 private-sector workers would get JobKeeper.

“It doesn’t quite jell with another number – the number of workers Treasury expects JobKeeper to keep in work,” they wrote at the time.

Lining up the 6.6 million estimate alongside the estimate that the unemployment rate would rise 5 percentage points without it, and Reserve Bank governor Philip Lowe’s assessment of working hours likely to be lost during the pandemic, they found the equivalent of 2.6 million jobs were at risk in a workforce of 13.7 million.

“That is a long way short of 6.6 million,” they wrote.

This week, neither economist was inclined to say “I told you so”.

“I don’t want to be too critical because Treasury doesn’t have any expertise in handling a pandemic,” Wilkins told The Saturday Paper. “No one does.”

He said the unprecedented circumstances had provided no real basis for forecasting and the lack of infrastructure for collecting and monitoring such data also made the job extremely difficult.

“If they’d severely underestimated the expenditure I think that would be a lot worse for them – and for us,” Wilkins said.

But he suggested there could have been a system of continual updating to minimise the risk of mistakes and, failing that, there was an argument for being less definitive about the likely take-up rate.

Wilkins said Treasury’s forecast would likely have affected the scheme’s design, including who would be eligible and who would not.

“I think when Treasury came back with a number of $130 billion, that was a very big number and would have influenced where the line was drawn,” he said.

That adds a fresh perspective to the agencies’ insistence that the calculation error had not affected how the money flowed. The same may not be true for the forecast the government adopted.

Borland said with only 3.5 million people now expected to receive the payment before its September end date, the gap between the 2.6 million job-loss estimate and the actual number of recipients is smaller than first thought.

That means the payment is subsidising fewer jobs unnecessarily – jobs that would have been retained anyway – than the economists had reckoned.

“As it turns out, the policy was better targeted than we thought,” Borland said.

Wilkins said the government now has room to iron out anomalies, such as any payments to those who don’t need the help.

On Thursday, it also implemented a retrospective regulation that exempts employers from paying superannuation on any portion of the JobKeeper payment that exceeds an employee’s usual wage.

The economists argue there should be some kind of mutual obligation, so recipient employers don’t subsequently axe jobs opportunistically – possibly difficult to guarantee in a dire economic climate.

Despite the scheme’s cost savings, the government has ruled out expanding it to include temporary migrants, casuals employed for less than a year, or employees of companies owned by foreign governments.

“This revision by Treasury is not an invitation to go and spend more,” Frydenberg told ABC Radio National. “All the money that the government is spending during the coronavirus period is borrowed money. There is no money tree.”

But it is considering changes, including extending JobKeeper beyond September and tapering to avoid ending it abruptly.

The government is also focused on future jobs, seeking to harness unlikely employer–union–government relationships forged during the pandemic to try to achieve industrial reform.

This week, Prime Minister Morrison announced a “JobMaker” plan, establishing five working groups to attempt change in intractable areas of industrial policy. They include award simplification, enterprise agreements, workforce casualisation, compliance and enforcement of wage rates and union behaviour and greenfields agreements for new enterprises. He has set a September deadline, ahead of a rescheduled October budget.

To demonstrate goodwill, he dumped the so-called union-busting Ensuring Integrity Bill, which was facing senate obstruction anyway.

Morrison urged all parties to “put down their weapons”. “The first step is to get everyone back in the room,” he said.

Deputy Labor leader Richard Marles said the government would need to “do more than book a room”.

This article was first published in the print edition of The Saturday Paper on May 30, 2020 as "Keeping low".

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Karen Middleton
is The Saturday Paper’s chief political correspondent.

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