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Australian Job Keepers say ‘bye bye’ to the milk bottle for good
Time is ticking. With less than two weeks left, 1.54 million Aussie JobKeeper recipients will have their beloved allowance winched away for good. On March 28, the government will completely wean approved businesses and employees off the JobKeeper wage subsidy of $1,500 per fortnight (later scaled back to $1,000).
What was JobKeeper?
JobKeeper is part of a $320 billion support package to subsidise wages for businesses impacted by the COVID-19 pandemic and forced lockdowns. The package was designed to keep the economy humming by helping employers to pay their employees wages during the pandemic for up to six months. Eligible businesses nominated their employees, who then received a fortnightly payment of $1,500 before tax.
Has JobKeeper worked? Yes, it has, but it also created its own problems. Without doubt JobKeeper cushioned the decline in employment over the first half of 2020. According to a white paper titled “How Many Jobs Did JobKeeper Keep?” by Reserve Bank of Australia (RBA) economists James Bishop and Iris Day, “One in five JobKeeper recipients would not have stayed employed during this period had it not been for JobKeeper. At the aggregate level, this implies JobKeeper prevented at least 700,000 additional employment relationships being lost in the short term. Overall employment losses would have been twice as large over the first half of 2020 without JobKeeper.”
Needless to say, the analysis has used a stack of assumptions and is retrospective, nonetheless the end result is still the same. JobKeeper worked.
The Morrison Government introduced the $90 billion JobKeeper program back in March last year to help prop up the economy and keep the wheel turning during the pandemic. It was heralded as a saviour for small to medium businesses, with some even saying the program was a saviour. It kept businesses afloat and employees working, but as things returned to normal, weaning everyone off the bottle wasn’t so easy.
Whilst JobKeeper was largely a success, it also created a large population of “dole-bludgers”. One flaw of the JobKeeper scheme was a small technicality that wasn’t picked up. Technically, it was not lawful to make an employee earn the JobKeeper allowance. As much as the scheme was devised to help businesses by supplementing wages, it used a fixed dollar figure, $1,500 per fortnight as the allowance. Someone who was stood down due to coronavirus reducing sales & profits, would then be eligible to receive a JobKeeper allowance of $1,500. The full amount is passed on by the employer, despite earning only $1,000. What’s more, eligibility for JobKeeper was defined as anyone working and who had the capacity to work, not just those who are without work due to coronavirus. The reason for this condition is because people suddenly found themselves having to home-school their children or care for someone who has been displaced.
An unfortunate side-effect of JobKeeper, was the large number of “stay at home, x-box playing dole-bludgers” that the JobKeeper scheme created. We spoke with Melbourne restaurant owner Gehan Rajapakse who said “there’s a shortage of bar-staff, chefs and floor staff. All the backpackers and international workers are gone and anyone who was working, is at home earning more on JobKeeper.”
With only days left before JobKeeper ends, it raises the question, “Are we going to be OK without JobKeeper?”
At a cost of $70 billion, the JobKeeper program is one of the most expensive government programs ever undertaken. To extend JobKeeper, is not only extremely expensive, but it would require an increase in the government’s debt-to-GDP ratio and the economics just don’t stack up. It is uneconomical.
Looking back, the primary reason JobKeeper was established was to:
- Subsidise wages for businesses impacted by the COVID-19 pandemic. It did this by helping employers in paying employee wages for up to six months.
- JobKeeper was also established to soften the blow to the economy.
Has JobKeeper worked? It successfully subsidised employee wages that had been impacted and it did this for a period greater than six months. JobKeeper also kept the economy humming. The ABS’s recent reading for gross domestic product (GDP) grew by 3.1% in the December quarter while the growth figure for the September quarter was revised up from 3.3% to 3.4%. It is the first time in 60 years that Australian GDP has risen above 3%. The CBA predicts GDP to grow by a further 4.2% this year, and 3.8% in 2022. So contrary to all the media stories about the economy falling off a cliff when JobKeeper ends, the economic recovery is faring a lot better than expected. Confidence is back and the housing market is soaring.
Looking at the share market, there are many losers and potential winners, here are two identified by various brokers in the industry:
- Seek.com (ASX: SEK) – At the completion of JobKeeper, Treasury estimates that some 1.1 million Aussies will still be reliant on the scheme when it ends. With the economy posting record quarterly GDP figures and confidence back to a reasonable level, the unemployment rate should start to fall. SEEK job ads were up 12.4% year-on-year (y/y) making it the fourth consecutive month of y/y job ad growth. SEEK job ads were up by 4.1% month-on-month (m/m) with the Trades & Services, Hospitality & Tourism and Healthcare & Medical making up the top three industries contributing to growth.
- Kogan (ASX: KGN) – With 1.1 million Aussies now effectively unemployed after March 28, consumer discretionary spending may soften until this cohort are able to gain meaningful employment once again. In the meantime, online discretionary spending stocks such as Kogan may experience a drop in online sales volumes leading into the end of the financial year.
