JobKeeper lifeline will remain open for business

At a cost of $70 billion it is supporting 960,000 businesses and 3.5 million workers, or about 30 per cent of the pre-COVID private sector workforce. It is the single largest fiscal measure in Australia's history.

It was legislated for six months, and Treasury has now completed a review at the midway point of the program.

The review concludes JobKeeper is a ''proven delivery mechanism to deliver widespread support at scale", and that it has met its objectives to save businesses and jobs, maintain the formal connection between employer and employee, and provide necessary income support.

With the labour market remaining weak, Treasury suggests there is a ''strong case" for continuing the program with some modifications. This is what the government will do.

The report details how the COVID-19 crisis is expected to see employment levels decline by 5 per cent between the March and September quarters, which is a faster and higher rate than that experienced in the recessions of the 1980s and 1990s.

Between February and May, more than 2 million people went from employment to either being out of work or working fewerand in some cases zero hours. In this deteriorating economic environment, JobKeeper's flat fortnightly $1500 payment has been a lifeline for many.

In the words of one small construction business, ''JobKeeper ensured we stayed breathing", while a business in the food services sector says ''JobKeeper is the only reason we are open today".

Using a range of data, including singletouch payroll information collected by the Australian Taxation Office and highfrequency Australian Bureau of Statistics surveys conducted during COVID-19, Treasury found businesses receiving the payment had on average a decline in turnover in April of 37 per cent compared with the same month last year.

Job separations between employers and employees in these businesses had doubled as restrictions were implemented in the period prior to JobKeeper. Following the introduction of JobKeeper, payroll jobs started to stabilise after an 8.1 per cent fall over the four weeks to mid-April.

The sectors with the largest number of JobKeeper recipients were professional services, construction, and healthcare and social assistance. Women, who make up 44.9 per cent of private sector employees, comprised 47.1 per cent of JobKeeper recipients.

Sole traders represented 40 per cent of the organisations receiving the payment but only 12 per cent of individual recipients.

The program was demand driven and, while some eligible businesses chose not to apply, only one in 10 of these businesses cited complexity and insufficient cash flow as the reason for not doing so.

ABS data found 44 per cent of businesses surveyed said JobKeeper, consistent with its core objective, influenced their decision to keep on staff, even if hours were reduced.

The flat $1500 fortnightly payment was a conscious decision, as it enabled the money to be distributed quickly using existing systems. However, one of the consequences of the flat payment equivalent to the minimum wage was that some people were receiving more under JobKeeper than they did pre-COVID-19. The Treasury review finds that about a quarter of JobKeeper recipients saw their income increase by an average of about $550. This is the same amount as the additional coronavirus supplement paid to JobSeeker recipients.

While the income increase of $550 is significant, it's important to acknowledge that this is calculated on the basis of the income a person was receiving from their JobKeeper employer and does not take into account any income they may have lost through losing a second job.

The review found secondary jobs comprised 39 per cent of all jobs lost since March, and a number of those receiving JobKeeper, particularly part-timers or longterm casuals, may have had second jobs.

The government is introducing a second-tier payment as part of JobKeeper 2.0 to better reflect the pre-COVID-19 incomes of recipients.

In recommending that JobKeeper be continued, Treasury said it should remain a time-limited program, as it can create disincentives that become more acute as the economy opens up.

While JobKeeper does not inhibit an employer from making an employee redundant, it could restrict labour mobility and people switching jobs. As the payment does not move with the staff member, it can discourage employees from moving to another firm that is doing better.

Under the JobKeeper extension to March 2021, only businesses whose turnover remains below the threshold will be eligible for continued support. This will ensure it remains targeted to those who need it most.

While not all these businesses will necessarily make it to the other side, by tapering the payment and extending the JobKeeper program, we give them the best chance of remaining viable.

JobKeeper has been an enormously successful program. It has helped keep people in jobs and businesses in business. Given the scale and size of the economic shock hitting the Australian economy, the JobKeeper program will be continued, providing critical support for those who need it most.

Josh Frydenberg is the federal Treasurer.