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How ‘JobKeeper’ works and economic impacts

01:33pm April 01 2020

Westpac Economics estimates 80 per cent of the retail and wholesale trade, accommodation and food services, and arts and recreation sectors will be eligible for the JobKeeper payment. (Getty)

Economists have applauded the Morrison government’s historic $130 billion stimulus package that potentially subsidises wages for almost half the workforce. 

But how will this massive third package (the first was worth $17.6bn and the second $66bn) actually work for workers and businesses affected by the COVID-19 pandemic, and what does it mean for the economy? 

Here's some of the details and reaction: 

-- Firstly, the $1500 per fortnight JobKeeper payment is pre-tax and equivalent to around 70 per cent of the national median wage. As to timing, it’s available from 30 March 2020 for up to six months with the Treasury saying around six million workers will receive the payment. 

-- It’s paid to employers who apply for the scheme with the ATO online and then claim the $1500 per eligible employee. Employers receive the first payment in the first week of May, but these are backdated to 30 March and can be paid to employees straight away if they are able to do so. 

“The JKP (JobKeeper) has been a game changer for employment and the unemployment rate,” Westpac chief economist Bill Evans said today. “Compared to the peak forecast rate of 17 per cent unemployment in June without the JKP, we expect the rate will peak at 9 per cent in June and subsequently fall to around 7 per cent (compared to 9 per cent) by end December.” 

-- To be an eligible employer, businesses with turnover of less than $1bn must show that turnover will be reduced by more than 30 per cent relative to “a comparable period a year ago (of at least a month)”. Larger businesses with turnover of $1bn or more must show that turnover will be reduced by more than 50 per cent. 

-- Eligible employees include full-time, part-time and “long-term” casual (employed on a regular basis for at least a year as at 1 March 2020) workers who are at least 16 and employed (including those stood down or re-hired) as at 1 March 2020. 

“The JobKeeper Payment will support employers to maintain their connection with employees. These connections will enable business to reactivate their operations quickly – without having to rehire staff – when the crisis is over,” St.George economists said.  
 

-- Note, you can only get one JobKeeper payment. Ie, if you have multiple employers, nominate one that has registered for the JobKeeper scheme as your primary employer.

-- It works like this: employers have to ensure that all eligible employees receive at least $1500 per fortnight (before tax). So, if you were previously earning less than this, your employer must pay a top up payment to $1500. For those normally receiving $1500 or more, you continue on your prevailing workplace arrangement with JobKeeper subsidising part or all of your income, with employers “able” to provide a top-up.

“This is a substantial policy – it covers 6m workers (44 per cent of the workforce) and circa 30 per cent of the economy's wage bill over this period. It does not avoid the near-term recession but does allow some businesses and workers to enter a recovery with better cash flow, which should help the economy recover lost output,” Morgan Stanley analysts said.

-- It’s up to employers if they pay superannuation on any additional wage paid because of the JobKeeper Payment.

-- It covers Australian citizens, permanent visa holders, Protected Special Category Visa Holders, non-protected Special Category Visa Holders who has been residing continually in Australia for 10 years or more, or Special Category (Subclass 444) Visa Holders.

-- Businesses without employees, such as the self-employed, have to provide their business ABN, a nominated individual’s Tax File Number, plus a declaration as to recent business activity (they must meet the same turnover tests). And they have to provide a monthly update to the ATO to declare their continued eligibility for the payments, which will be made monthly.

“Our first read is the policy is well designed and very broad,” UBS economists said, noting combined stimulus and support measures from governments and RBA has risen to around $331bn, or circa 17 per cent of GDP.

-- Not-for-profit entities (including charities) can apply but also must meet the turnover tests. 

-- Businesses subject to the Major Bank Levy aren’t eligible for the scheme.

So, all up, the historic package that some observers have compared to a temporary “universal basic income” is expected to provide notable support to workers and the economy during this unprecedented shock. 

However, uncertainties remain around how businesses will ultimately respond to the scheme. 

For example, JPMorgan economists said that because the terms are unconditional with regard to hours worked, it might not ultimately flow to six million workers given that some employers may still not feel incentivised to “hold onto labour”. Also, it would do little to “help with GDP now given the fundamental issue that affected industries in many cases aren’t allowed to produce”

But with applications for the scheme reportedly soaring, they agreed it would assist the inevitable COVID-19 recovery once “restrictions are lifted and households can spend again”

The views expressed are those of the author and do not necessarily reflect those of the Westpac Group.

The information in this article is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed.

 

Michael Bennet is Editor of Westpac Wire. He joined Westpac in 2017 after more than 12 years in journalism, most recently at The Australian as the national newspaper’s banking reporter based in Sydney. Michael has worked at various News Corp publications and other media companies covering industries including financial services, resources, industrials, markets and economics. He is originally from Perth, Western Australia, where he also wrote across magazines covering the arts with a focus on music.

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