The new JobKeeper might cause bankruptcies for businesses

Summary

  • With the end date of the government’s wage subsidy program approaching in September, businesses have been warned that the incentive could make them go bankrupt.
  • The Federal government has pledged some form of income support for the nation, as well as for severely hit state of Victoria, the details for the same would be disclosed on 23 July economic update.
  • Many businesses could accumulate debts due to workers’ entitlements, which they might be unable to pay because of lack of income, in the current situation.
  • Speculations are rife around varied rates of payment with continuous assessment of eligibility in the new JobKeeper scheme instead of flat $1500 fortnightly payment.

JobKeeper program that provides a wage subsidy to workers of up to $1500 a fortnight is due to end in September. The subsidy is scheduled to end just weeks after the 6-week lockdown imposed in Victoria ends, and would give only a few weeks of wages to businesses.

There has been dilemma on whether JobKeeper would be extended, with questions on how households would manage with reductions in JobSeeker payments or how businesses and workers deal with the ending of JobKeeper subsidy and how many businesses would close down permanently.

Similarly, the increased rate under JobSeeker payment is also scheduled to return to its lower rate after 6-month period that ends in September.

However, with the resurgence of cases in Victoria and re-imposition of lockdown in Melbourne city, business groups and people had together called for an extension of support to Victorians and Federal Government to extend JobKeeper.

ALSO READ: Transiting from JobKeeper to JobSeeker: Morrison’s Government plan to boost employment

Recently, Prime Minister Scott Morrison has confirmed that there will be some form of income support beyond September but did not promise anything on an extension of JobKeeper program. He assured an income assistance to severely affected businesses, people, and industries due to coronavirus, and emphasised that the need for support measures in Victoria was far greater than in other parts of the country.

Josh Frydenberg, the Treasurer, stated that there would be targeted and temporary income support to help people who need it the most. He also added that Victoria will be behind when compared to other states, in terms of recovery, and asserted that the re-imposition of lockdown could cost the state $1 billion a week.

Businesses could go bankrupt

Predictions about an extension in JobKeeper scheme has been doing rounds of late, but businesses have been cautioned that the incentive could send them broke. Workers with a record in the books to receive $1500 per fortnight payment remains to accumulate annual leave among other entitlements. However, if a business is forced to let its employees go, they will be required to pay for these entitlements from cash reserves or from non-existent profits.

Council of Small Business Organisations Australia, Chief Executive Peter Strong stated that accumulation of entitlements has been a big concern in the sector and business owners must give this issue a decent thought before signing up the new overhauled JobKeeper scheme.

Businesses must see if there are enough cash reserves to pay workers, and businesses are not at risk by keeping workers on JobKeeper. While JobKeeper has been a great scheme to retain workers, but accruing debt, which cannot be paid due to lack of revenue is not a good idea. It is better to shut down and then resurrect when circumstances get better and scale back when businesses feel they are in a position to grow again. Keeping workers on payroll because of JobKeeper scheme’s availability did not prove useful to anyone.

The Federal Government is due to announce the first economic update on 23 July. Reports have suggested that the flat $1500 JobKeeper payment for every fortnight could be dropped to different rates of payment with continuous assessment of eligibility. The government anticipates that not many business owners would opt for the scheme, and it will add to unemployment numbers.

While the official unemployment rate is at 7.1%, the numbers are likely to go up when June figures come out. Mr Strong also added that the effective unemployment rate would capture the true effect on unemployment as it captures those who have left the labour force, as well as those on zero-hours along with those who are officially unemployed. The effective unemployment rate is around 13.3% at present.

JobKeeper expectations and further tax cuts ahead

Luke Hilakari, Secretary of Victorian Trades Hall also urged the Federal government to extend the deadline for JobKeeper. He asserted that some bosses were underprepared to support employees in work from home at the time of first lockdown and lessons must be learnt now at the start of the second round.

He further added that JobKeeper must not only be extended but should also consist of casual and migrant workers who have been locked out. He is also anticipating employers to have sufficient measures to offer the right equipment and 2-weeks paid leave, with a flexible work environment for those engaged in care responsibilities.

Mr Hilkari also wants JobSeeker to stay at an enhanced rate stating that there are 12 people applying for every vacant job. Millions would be stripped off of money if the fiscal support is withdrawn.

There are increasing concerns on the need for the economy to open up along with speeding up of business investments, as well as promoting through tax cuts, infrastructure spending and extension of JobSeeker and JobKeeper programs by the government. Australia needs to manage the local outbreaks effectively through the right systems unless a vaccine is developed.

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