Australia’s action ahead after Reporting Error in Enrolment for JobKeeper

Summary

• JobKeeper will cost AU$60 billion less than initially estimated at AU$130 billion.
• Only half, 3.5 billion will access the wage subsidy than initially expected number of 6.5 billion.
• The fall is partly because the level and effect of health restrictions were not as harsh or long-lasting as foreseen.
• More workers in need can come under JobKeeper net now.
• U-shaped recovery is expected for the economy and importance of strong fiscal policy cannot be ruled out.

The Federal Government on 21 May revealed a reporting error in the number of employees estimated to access the JobKeeper program. As per a press release by Treasury and Australian Taxation Office (ATO) on 22 May, the enrolment sheets completed by about 910,055 businesses had signalled the JobKeeper scheme would cover about 6.5 million eligible employees. However, when these forms were examined by ATO, the agency discovered that about 1000 of the 9,10,055 businesses enrolled made substantial errors in the enrolment form while reporting the estimation of eligible employees.

The most recurrent error made by businesses was that instead of reporting the employees they anticipated to be qualified for the scheme, they reported the amount of aid they were likely to obtain. To quote an example, more than 500 businesses with just 1 employee (eligible), they had reported 1,500 employees mistaking it with the fortnightly JobKeeper subsidy of AU$1500.

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This implied that the wage subsidy program would cost the budget AUA$70 billion instead of the estimated AU$130 billion as economy reopened faster and the impact of health restrictions have not been as severe as expected. Hence, Treasury has revised its estimate stating that JobKeeper will support 3.5 million Australians instead of an initial estimate of 6.5 million.

JobKeeper was designed to help and support eligible employees in businesses that have witnessed a substantial fall in their turnover. The estimate of 6.5 million was formed when the number of coronavirus cases was growing substantially, and social distancing measures were being tightened in Australia and the rest of the world.

However, Treasury made clear that the reporting error did not have any effect on the payments already made and did not change the bleak outlook on the economy. Treasury stated that the jobless rate would be about 5% higher if JobKeeper subsidy was not in place. It continues to expect the unemployment rate to reach 10%, but the figure remains uncertain to predict amid the impact of social distancing measures on the participation rate.

Labor questioned the government

Labor had asserted for the subsidy program to be extended to more workers who lost their jobs when non-essential businesses were forced to shut down. Still, Morrison and Frydenberg face internal pressures to rewind the level of fiscal support.

Anthony Albanese, Labor leader, questioned Morrison government’s competency after the error disclosure and stated if the government had problems in getting this right, trusting it on economic recovery would be hard. He asserted that a number of working people had missed the income support as government had announced that its JobKeeper was fully subscribed and it's $130 billion had all been allotted.

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He added that there are 1 million casual workers, local government workers along with entire sector like the arts and the entertainment sector who have missed out the needed support implying even longer time to recovery and even deeper economic contraction.

The Treasurer, Josh Frydenberg stated that the mistake is likely to help taxpayer and the budget as borrowing would be less than initially projected. But he added that this must not imply that more money can be spent now, but rather efforts must be made to make sure the subsidy program reaches to people who are in the most need.

He indicated that some changes to the program could be made but not wholesale changes. A review will be done midway through the program, and the result will be awaited of that review. Further, he confirmed that there were no underpayments or overpayments related to the error made. It is just a revision in the number of people covered by the program that has changed.

Current status of applications

About 910,055 businesses had enrolled in the JobKeeper program as of 20 May out of which 759,654 had made claims to their eligible employees and applications processed. This resulted in rolling out of AU$8.7 billion of payments approved, covering 2.9 million employees. Nearly 97% of claims had been reimbursed within 3 business days from the time when the employers made the declaration.

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Roughly 150,000 businesses are scheduled to conclude their employee declaration that is needed before receiving any payments. 31 May has been chosen as the deadline to enrol in the scheme while the program will remain accessible for businesses that fulfil the eligibility criteria at any time across 6 months of its operation.

Steven Kennedy plan ahead

Steven Kennedy, while addressing the COVID-19 Senate committee, stated that Australia is handling the crisis well and is in the sound fiscal position. He noted that the debt would be much higher without the AU$194 billion stimuli, including the JobKeeper subsidy.

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The Treasury Secretary stated that JobKeeper was being monitored and its review due in June will also consider its interaction with JobSeeker payment of AU$1100 a fortnight, the robustness of the labour market as well as the potential tapering. The Treasury will also evaluate sectors that are recovering and sectors that need payments for longer while reviewing JobKeeper. But he warned that JobKeeper and coronavirus supplement are temporary and will not go on forever.

Treasury expects a U shape recovery stating that fiscal support would be of high importance in the coming months and years due to limited support by RBA.