Turning Job Seekers into Job Keepers: Australia's new wage subsidy

Australian businesses have $130bn to spend on wages. Will fired staff be re-hired? Who gets a pay rise? Do employers pay super on the subsidy? And will this really boost consumer confidence? 

Eligible businesses can expect help in paying up to six million employees, with the Federal Government guaranteeing about $20,000 for each employee between now and the end of September.

Payments from the $130bn package will start to land in employers accounts in the first week of May, and retrospectively subsidise wages paid from 30 March onwards. It will provide certainty of near-term cash flow for those businesses experiencing massive drops in revenue (30 per cent falls for those up to $1bn turnover, and 50 per cent above that).

Crucially the JobKeeper payment is higher than JobSeeker - $1500 versus $1100, making it more attractive to try and stay employed, or be re-hired, than go on unemployment benefits. “From the Government’s perspective, once someone is on unemployment payments, whether its JobSeeker or not, you’re more likely to stay on that for a longer term,” EY Chief Economist Jo Masters says.

“Being stood down and paid some income, as opposed to losing your job, implies there is a job on the other side, that there will be a job ready and waiting rather than having to hunt and compete for one, which in turn helps with confidence levels.” 

The Economy

In terms of consumer confidence, Masters says unemployment rates are one of the best indicators of correlation with economic activity. By keeping up to six million people employed, the government is avoiding what could have been a significant spike in the unemployment rate. It rises about 1 per cent for every 125,000 people who lose their jobs.

But, she says, given the February job data showed about 13 million people employed in Australia, the potential that this subsidy may end up supporting just under half of those suggests any boost will only cushion, not fully offset, the anticipated hit to consumption from weakness in the labour market.

Workforces

Whether it keeps people out of the Centrelink queues is yet to be seen. EY Partner Matt Lovegrove says the subsidy may reduce the total amount of ‘stand downs’ and redundancies, but not all. “It adds another consideration to the people planning and labour cost reduction options and actions businesses have already been, and will continue to, undertake,” he says.

Given the program applies to any employee on the books as at 1 March, Lovegrove says it’s also likely some employers will take the opportunity to selectively ‘reactivate’ employees they have stood down in the interim, but that whatever employers do, they must be cognisant of their existing employer obligations.

“What it might do is make employers reconsider stand downs and focus these people on re-training their employees for the 'new normal', effectively subsidising the reskilling of their people for the 'Next' and 'Beyond' horizons,” he says. “That would be a win for all - individual businesses, industries and the nation as a whole.”

From a workforce planning perspective, the scheme will be a useful tool to reduce workforce capacity and capability risks in the middle and longer term, something employers had been worried about until very recently.

New Zealand

New Zealand introduced their 12-week wage subsidy two weeks ago today, actioned through the country’s social services provider rather than its Tax Office.

For New Zealanders working in Australia who would otherwise not be eligible for government support, Prime Minister Scott Morrison confirmed their wages can be subsidised through the JobKeeper program.

On Friday, the New Zealand Government redefined its program parameters after concerns employers could exploit the system, an issue also raised with Australia’s government at the JobKeeper launch yesterday. 

“New Zealand started with something based on a trust model, more purposive rules and guidelines rather than prescriptive,” New Zealand Private Client Team head Darren White says. “What they’ve ended up having to do is bring some prescriptive aspects into that, to try and address some of the potential leakage that might otherwise have occurred.”

But, he says, most people have taken to it and engaged with the process in the way it was intended, with about 95 per cent of his clients registering for the scheme within the week it launched.

“Right from the get go we were receiving quite genuine enquiries from clients who were perplexed about whether they were obliged to pay the full subsidy through to employees, particularly where some employees were ordinarily earning less than the subsidy amount on a weekly basis.

“They also wanted to know if they were they able to use any funds they received that was beyond that employee’s wage, to help other employees who would normally get more,” he says. A full fact sheet for the NZ scheme is available here. 

Tax

Treasury guidance in Australia suggests that every person, irrespective of whether they earn less than the $1500 a fortnight will receive that amount, making it a uniform lump sum payment for all.

Preliminary review from EY’s Tax Policy Centre Oceania suggest that businesses will be liable to continue paing superannuation, noting that the Treasury fact sheet states “It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.”

EY Oceania Tax Policy Leader Alf Capito says the eligibility rules require careful attention and he expects the ATO to do integrity checks on employer eligibility. 

He also says how the Australian program works in practice wont be clear until Government finishes drafting the legislation, at best at the end of this week. That detail will clarify who will be taxed on any subsidies, and how that will be effected, although Capito says its likely the government could get some money back from the initial outlay.

EY Employment tax specialist Frank Klasic says while he is also waiting to see the substance of the legislation, he expects the payment when made by the employer will still take the character of salary and wages.

He says employers should be looking to deferral of lodgement obligations and/or payments of these obligations to help them manage their near-term cash flow, with different revenue offices introducing different concessions.