Coronavirus wage subsidy scheme: what you need to know

The Federal government has announced $130 billion in wage subsidies to halt the unemployment spiral caused by COVID-19.

It’s a potent sign of both the deep uncertainty posed by the Coronavirus Crisis (CVC) and the rapidly accumulating economic havoc that it’s unleashed how quickly the policy response has evolved.

In the space of just a few weeks, we’ve moved from a relatively conventional fiscal package that at $17.6 billion ( a little less than one per cent of GDP) was deemed as appropriately ‘proportionate and targeted’ to not only vastly expanded budgetary and monetary support but also increasingly radical and unconventional policy measures.

The government’s announcement on 30 March of a comprehensive wage subsidy at a projected cost of $130 billion is a powerful example of just how far and how fast we’ve now travelled along both dimensions.

Update to JobKeeper wage subsidy – relaxed requirements for charities

On 6 March 2020, the Federal Government significantly relaxed the eligibility requirements for charity workers to be eligible for the JobKeeper wage subsidy. The legislation that will be introduced into Parliament on 8 March 2020 will:

• allow charities registered with the ACNC to be eligible for JobKeeper payments if they have a turnover decline of 15% or more; and
• apply to all registered charities, including those with a turnover of more than $1b.

How much is the payment?

• Affected employers will be able to claim a fortnightly payment of $1,500 per eligible employee from 30 March 2020, for a maximum period of six months.

Which employers are eligible?

• Employers with a business turnover of less than $1 billion where their turnover will be reduced by more than 30 per cent relative to a comparable period (of at least a month) a year ago; or
• Employers with a business turnover of $1 billion or more where their turnover will be reduced by more than 50 per cent relative to a comparable period (of at least a month) a year ago; and
• The business is not subject to the major bank levy.

In addition, the employment relationship must have been in place as at 1 March 2020, and employees must be currently engaged to be eligible to receive JobKeeper payments.

NFPs including charities and self-employed individuals that meet the turnover tests that apply for businesses are also eligible.

Which employees are eligible?

• Employees currently employed by the eligible employer (including those stood down or re-hired) who were employed by the employer at 1 March 2020.
• Full-time, part-time, or long-term casual (regular basis for longer than 12 months at 1 March 2020) employees are eligible.
• Over 16 years of age, a citizen, permanent resident, or one of several other special category visa holders (see factsheet for details).
• Not in receipt of a JobKeeper payment from another employer.

How will it be delivered?

• Businesses can register through the ATO website
• The program began with immediate effect from 30 March 2020, with the first payments to be received by eligible businesses in the first week of May as monthly arrears from the Australian Taxation Office.
• Eligible businesses can begin distributing the JobKeeper payment immediately and will be reimbursed from the first week of May.

The government has made a factsheet available with more information.

How does this compare with other countries’ schemes?

At a flat rate to all recipients of $1,500 a fortnight or $750 a week and payable for up to six months, the JobKeeper allowance is both more generous and longer-lasting than its Kiwi counterpart (which is paid at a flat rate of NZ$585.50 for people working 20 hours or more per week (full-time rate) or NZ$350.00 for people working less than 20 hours per week (part-time rate), and which covers 12 weeks per employee).

It’s not as generous in terms of individual payments as the UK scheme (which allows employers to claim for 80 per cent of furloughed employees’ usual monthly wage costs, up to GBP2,500 a month which is above the UK median income, for at least three months) but is longer-lasting and more importantly, is also designed to apply to all workers in impacted firms, rather than just those on a leave of absence, and as such is more directly focussed on keeping people in work and connected to their employer.

How does the subsidy compare to median earnings?

How does it stack up against Australian wage norms? According to the ABS, in August 2019 median weekly earnings for all Australian employees were around $1,100 while median weekly earnings for full-time employees was $1,375. That puts the payment at about 68 per cent of median earnings and 55 per cent of full-time median earnings. It’s also about $10 above the minimum wage of $740.80 / week. In some of the sectors likely to be hardest hit by job losses as a result of the virus, it is above median weekly earnings: that’s the case for both accommodation and food services ($500/week) and retail trade ($700/week).

What will be the impact for firms and workers?

The government’s extensive new wage subsidy changes the economics around the decision to retain staff. For many businesses where the choice on whether a firm is financially able to hold on to employees has been a painfully close call, this new subsidy will help make reaching a positive decision easier.

It also provides the opportunity for employers with higher paid staff to look to an adjustment in hours (that is, a shift to more part-time work) instead of a reduction in job numbers. And for many employees in some of the most exposed sectors of the economy, the subsidy will either cover all their current wages or even represent an increase in take-home pay.

Of course, employers will still need to think carefully through the issues as they contemplate how to adjust staffing decisions given both the change in economic circumstances and this new subsidy arrangement. That includes taking into account a range of legal and practice considerations.

My colleague David McElrea has written a helpful guide to navigating workplace relations through COVID-19.

What will the effect of the scheme be for the economy overall?

The government estimates that up to six million workers will be eligible for the payment, which is indicative of the enormous scale of the shock now hitting the Australian labour market.

This package should have a significant impact in limiting the damage caused by that shock – in an analogy to the measures taken to dealing with the health crisis, some commentators are describing it as designed to flatten the unemployment curve. Sadly, however, it won’t be enough to eliminate the rise in joblessness and sharp fall in hours worked now underway, given the huge economic dislocation and severe financial pressures that many businesses and sectors of the economy are now being subject to. But it will save many jobs and it will help keep many workers connected to the businesses that have employed them.

How big is the total stimulus package now?

With this third major injection of budgetary support, total fiscal spending by the government now stands at almost $229 billion or almost 12 per cent of GDP. Add in the RBA’s term funding facility and total stimulus to date is around $319 billion or more than 16 per cent of GDP. These are astonishing numbers, not least considering the very short timescale over which they have been announced.

Table: Running total of federal support (excluding National health plan)

Analysis

Policymakers here in Australia and overseas are rolling out simultaneously two sets of unprecedented policies: the first of these is rightly focused on securing public health but also has the side-effect of inflicting enormous economic collateral damage in the form of delivering a brutal ‘sudden stop’ to large swathes of the real economy; that means a second set of policies are required to mitigate the economic disruption caused by the first by as much as possible.

That second mitigation response must try to do at least two things. First, it needs to be large enough to minimise or least alleviate the cascade of bankruptcies, shutdowns, job losses and insolvencies that would be triggered in the absence of any offsetting measures. And second, it must try to preserve the businesses, along with the human, physical and social capital that we will need to ensure that the recovery, when it comes, can be as quick as possible.

Economists in this context tend to talk about ‘hysteresis’ or path-dependency shocks (a fancy way of saying that you can’t unscramble the eggs once they’ve been scrambled). The idea is that shuttered businesses and lost jobs have permanent effects that entail long-term damage for economies and societies. The government’s strategy of putting the economy into hibernation is intended to reduce these costs and thereby leave us in a much better state for when the CVC has past, the thaw has set in and the policy focus shifts from keeping our economy on life support to full-scale rehabilitation and recovery. In seeking to limit the rise in unemployment and provide an incentive to sustain linkages between firms and workers, and so help preserve human and firm-specific capital, this week’s JobKeeper scheme is a critically important contribution to that strategy.

For more COVID-19 information and tools please visit our Resource Hub