Deloitte Access Economics calls for "JobTweaker"

Deloitte Access Economics has applauded the Federal Government's $130 billion JobKeeper package, describing it as an economic lifeline that chose speed over elegance but "got the balance right for most people".

After the package was announced the consultancy reduced its forecast FY21 unemployment rate from 12 per cent to a peak of 8.5 per cent, implying the saving of more than half a million jobs.

However, Deloitte does not expect unemployment to return to pre-coronavirus levels of around 5 per cent until 2024. Bringing down the number of jobless while phasing out the wage subsidy will be a key policy challenge for the government.

"While Treasury is no doubt working up options to put on the table, we recommend that the federal government should opt for what we call 'JobTweaker' - tweaking JobKeeper to shore up a strong recovery," the group said.

"The aim is to save more jobs that can be saved, while recognising that there will be some we cannot save. Australians cannot keep a job that won't earn its keep, but we can keep more if we tweak JobKeeper.

"For JobKeeper to stop abruptly, all it would have done is have kicked the unemployment can down the road."

Deloitte notes there is a good chance the original $130 billion cost of JobKeeper won't be fully spent, as its costing was put together at a time when the outlook was at its bleakest.

"The more successful the measure has been the cheaper it has become, and many businesses -  and people -  thought that they qualified for JobKeeper when they didn't," the group said.

"This means a JobTweaker approach could potentially have a minimal impact on the budget bottom line. Every taxpayer dollar is vital. And so, it is vital that we make sure the $130 billion this nation is spending gets maximum bang for buck."

The consultancy proposes making JobKeeper "smaller, but for longer".

"JobKeeper eventually needs to go -  it costs a lot, it may cause competitive problems between firms, and its relationship with JobSeeker with respect to incentives to work is complicated," Deloitte Access Economics said.

In designing the phase-out, the group considers that:

• The dignity of work will reign: Lots of good things will happen regardless of how JobKeeper is phased out. People want to work, and businesses want to reopen. We all want to get back to 'normal'. So, the incentives generated by JobKeeper and JobSeeker are important, but the dignity and purpose of work and individual aspirations are even more important.
• Timing is everything: Different types of businesses will be opening in different states at different times, but JobKeeper is due to expire all at once on 27 September 2020. That means a complex problem will be addressed with a one-size-fits-all response. We can do better than that. We need to ensure there isn't a mass shift from JobKeeper to JobSeeker because some businesses simply can't sustain reopening or afford to keep their employees.
• So, complexity is key: Where a one-size-fits-all approach on the way into hibernation worked, one size will not fit all on the way out. Different businesses and different occupations will open up at different times and at different speeds.
• No zombies: One pandemic is enough for a lifetime and there is a risk that JobKeeper, as a measure designed to preserve jobs, could eventually create 'zombie firms' that neither fully recover, but don't go bankrupt. This would slow the broader recovery. But so too would a sudden stop to all support.

Deloitte Access Economics proposes the following ideas for considerations in the government's review in mid-June:

• Phase JobKeeper out in line with a turnover measure over the short-term and in line with reopening steps. As turnover increases with economic activity, the JobKeeper payment steps down from $1,500 per fortnight to $0 until turnover begins to return to the pre-COVID levels. Just like the turnover drop made them eligible for JobKeeper in the first place, a turnover recovery could make them ineligible.
• Or more simply, the payments could be withdrawn slowly from $1,500 a fortnight to lower amounts on succeeding fortnights: to $1,200, then $900, $600 and finally $300 adding eight weeks and a further $20 billion to its cost or potentially just using up the already 'unsubscribed' amount.
• Even more narrowly, the government could take a targeted and more sectoral approach. For instance, it replaced JobKeeper with a $600 a fortnight supplement for just over three months (beyond September) for businesses that fit narrower criteria and have been hit the hardest: 20 workers or fewer, and working in industries such as air transport, food and accommodation and arts and recreation. Such a measure is estimated to cost around $1.5 billion a much smaller share of the unsubscribed JobKeeper pie, but equally sustaining a much smaller share of the economy.

Prime Minister Scott Morrison has today dismissed any speculation JobKeeper would be wound back before its September end date as "very premature".

"We are six weeks into a six-month program. And the impact of the virus, how it will impact on Australia in the months ahead with a reopening economy is very much a work in progress," he said.

"In early March, I said we had to have programs that were targeted. We had to have programs that used existing distribution mechanisms within the government.

"Now, how that program can be adjusted to better support over that period or if there are sectors that come under greater strain over a longer period of time, these are all things that the government is fully aware of."

Updated at 4:21pm AEST on 11 May 2020.