A Better JobKeeper: Targeting Support to Workers, Businesses in Need

A new discussion paper from The Australia Institute has proposed a model for how the Federal Government’s JobKeeper policy could be reformed, allowing the package to be retained and improved while clawing back spending in situations where the payments are no longer needed.

The proposal, written by The Australia Institute’s Senior Research Fellow David Richardson, would see businesses pay increased tax on their JobKeeper payments as they recover and achieve profitability, gradually reducing the cost to government as the economy improves.

As states and territories across Australia find themselves in different stages of their economic recovery from COVID-19, the proposal would help to address the fact that one size no longer fits all in this pandemic.

“It remains vital that JobKeeper or something similar is retained beyond the September deadline,” said David Richardson, Senior Research Fellow at The Australia Institute.

“By clawing back excess payments that are being made to already profitable businesses, the long-term costs of the program can be better targeted to those workers and businesses that genuinely need support.”

To Explain: At the moment JobKeeper attracts the ordinary company tax rate. The proposal here is simple — tax JobKeeper payments at a higher rate in order to claw back the JobKeeper payment from businesses that do not really need it. The attraction of modifying company tax to obtain a claw back is that no tax is payable unless the company actually earns a profit and the higher company tax rate only applies on that part of the profit due to JobKeeper.

“Many people are not covered by the payment in its current form, including short-tenure casual workers, temporary visa workers and people in non-standard employment arrangements, such as those in the arts and entertainment. Indeed, the present rules encourage business to dismiss non-eligible workers and keep the eligible workers who attract the subsidy. Efforts to better target payments should ensure the long-term viability of the program and allow for the scope of covered workers to be broadened,” Richardson said.

“The purpose of JobKeeper is to support workers and allow them to remain connected to their employers, not to subsidize business profits. When the JobKeeper payment does result in a profit for a company, there should be a means of clawing back that payment.

“Under our proposal, if a company is not making a profit then none of the JobKeeper payment will be taxed, meaning the current level of support will continue exactly as it is now for businesses that have been hit hard by COVID-19.

Our modelling examines how the reforms would work using a 60 per cent and 90 per cent claw-back of excess JobKeeper payments. The actual rate would depend on how much the government thinks it needs to claw back from recipients.

“How the government chooses to extend JobKeeper will have a dramatic effect on many Australians’ lives and the national economy. Getting it wrong now and winding back support too early, or targeting funding incorrectly, would be a grave mistake indeed.”

The discussion paper, with more detail on the proposal, is available here.

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