JobKeeper Scheme to cost an extra $15 billion amid Victoria crisis

Summary

• Changes worth $15 billion were made in the extended JobKeeper scheme.
• Businesses will now have to prove a decline in their GST turnover for only one quarter to qualify for JobKeeper extension, and workers will also qualify for the scheme if they began their respective jobs on 1 July instead of 1 March (applicable from 3 August).
• The recent containment measures are expected to subtract 2% from national growth in the September quarter, as per RBA.
• Victoria's lockdown in this quarter is estimated to erase $12 billion from the nation’s economy, and the headline unemployment rate could peak to ~10%.

On 7 August, Treasurer Josh Frydenberg declared that changes in the JobKeeper wage subsidy and deterioration in the economy due to harsher restrictions in Victoria would result in the total cost of the JobKeeper program to rise to $101.3 billion. The Morrison government has planned to help more businesses to qualify for JobKeeper after the launch of Stage 4 restrictions in Metropolitan Melbourne and Stage 3 restrictions in regional Victoria.

Victoria has recorded 450 new coronavirus cases, as on 7 August, with the total cases reaching to 13,867 and death toll reaching 181.

On 21 July, Prime Minister Scott Morrison announced that the government would retain the current JobKeeper Program until the end of September before the new JobKeeper begins with phased cuts till 31 March 2021. He declared that the Jobkeeper subsidy will be cut from flat $1500 to $1200 a fortnight for full-time workers and $750 for part-time workers starting from October.

The qualification criteria for the scheme remained the same for employers, i.e. they were eligible for the program if they have an annual turnover of up to $1 billion and witness a 30% drop in the quarter, while businesses with elevated turnover indicate a 50% plunge. The criteria of the pay cut to $750 from October and $650 from January also remains the same for anyone working less than 20 hours each week.

More businesses to qualify for JobKeeper

The new adjustments include that businesses will only be required to reveal a fall in turnover over one quarter, instead of many, to become eligible for the scheme. This implies organisations that are able to show a substantial fall in turnover in September quarter could access the program in the December quarter.

Changes will also be relevant to businesses applying for the second extension, which is supposed to begin on 4 January 2021. A business that suffers a drop in turnover in December 2020 quarter would be able to receive JobKeeper extension in March 2021 quarter.

As per the previous rules, a company had to report real GST turnover loss for the current year June, September, and December quarters to qualify for 3 months from 4 January 2021.

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Also, a shift to employee reference date was also announced by moving the date of employment from 1 March to 1 July 2020 for an eligible employee, applicable from 3 August 2020.

The expenditure review committee authorised the modifications on 6 August, during afternoon amidst rage and uncertainty among companies struggling to cope with the Victorian economic closures, which will be there for at least the next six weeks. Hence, in total, about $15 billion is expected to support businesses and workers, with hundreds of thousands additional Victorians to be eligible for the JobKeeper wage subsidy.

The Treasurer further emphasised on the fact that the introduction of stage 4 restrictions by the Victorian government will have a severe economic impact on the Victorian and Australian economy.

Above 270,000 companies are already dependent on JobKeeper to pay 975,000 employees in Victoria, with even more expected to be added after the shutdown. The government has eased the eligibility criteria for businesses to qualify for JobKeeper extension to help businesses and workers in jobs amid these challenging times.

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About 4 million Australians are likely to benefit from JobKeeper payments at the end of the September quarter, followed by 2.24 million and 1.75 million in December quarter and the March 2021 quarter, respectively.

Mr Fydenberg also revealed that the combined effect of the economic decline in Victoria, with more firms needing to rely on JobKeeper subsidy and new changes introduced to the program would witness the cost of JobKeeper to rise by ~$15.6 billion.

Victoria crisis could extend the recession

The rapid daily surge in coronavirus cases in Victoria and the subsequent stricter lockdown measures adopted to limit the virus spread is likely to extend Australia's first recession witnessed in the last 30 years. With the shutdown of retail and manufacturing sectors, restrictions on the construction sector and a curfew in Melbourne, the nation’s GDP is set to shrink for the September quarter.

Treasury estimates that the strict measures taken in Victoria could decrease real GDP between $7 billion and $9 billion in the quarter ending in September. As a result, Victoria crisis could push the unemployment rate to nearly 10% and could wipe off $12 billion from the national economy.

As per RBA Monetary Policy Statement released for August 2020, the containment measures declared, recently, will likely subtract 2 percentage points from national growth in the September quarter. RBA has measured the outlook for the economy by forming 3 scenarios due to massive economic uncertainty surrounding the virus spread and its economic fallout.

The below-mentioned figure gives the detail of the same.

Scott Morrison, in a press conference, stated that the latest measures in Victoria amid coronavirus could take away about $10 billion from the nation's economy within weeks. He also stated that the situation could result in a real unemployment rate to reach 13% as stage 4 restrictions could result in 400,000 Victorian natives without jobs in the state.