Keeping Confident

Never mind the misinformation that led to Treasury’s $60bn miscalculation. The most important fact about JobKeeper is the subsequent record rise in consumer confidence. By Josh Frydenberg.

The JobKeeper program represents an economic lifeline for millions of Australians.

It has also provided a vital psychological boost, with surveyed consumer confidence having its biggest weekly gain on record, rising by 10.1 per cent in the week after the program’s announcement on March 30.

Initially, the Treasury forecast that the six-month program, including a flat $1500 fortnightly payment, would cover about 6.5 million workers at a cost of about $130bn.

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The costing was based on an expectation that the economic and health situation would deteriorate as the number of coronavirus cases increased exponentially and the health restrictions tightened – not unreasonable at the time.

On March 23, the number of coronavirus cases had increased by 22 per cent.

The next day, the national cabinet announced new social distancing arrangements with Treasury seeing a scenario where GDP fell by 10 to 12 per cent in the June quarter — a number that could double to 24 per cent or $120bn in the June quarter if we moved to an eight-week lockdown akin to that in Europe.

As I said at the Press Club recently, this was the cliff we were standing on.

Fortunately, Australia has made great progress in flattening the curve and reducing the increase in daily cases down to below 0.5 per cent for 35 consecutive days.

While, tragically, 102 Australians have lost their lives from coronavirus, the death toll in the United Kingdom, on a per capita basis, is more than 100 times higher and in the United States more than 50 times higher.

Our progress has meant that the economic impact, while severe, did not reach the depths we initially feared.

As a result, it is forecast about 3.5 million workers, not 6.5 million, will be covered by JobKeeper at a cost of $70bn, not $130bn.

Notwithstanding, at the same time the Australian Taxation Office data collection was indicating that 6.5 million employees would be covered by the program.

As has now been explained by the ATO, there was a reporting error in the data provided by some employers to the ATO.

Employers submitting forms for JobKeeper were asked to fill in a box citing the number of eligible employees within their business.

Of almost a million businesses which formally enrolled, about 1000, about 0.1 per cent, put in the box the dollar amount they thought they would receive from JobKeeper each fortnight, not the number of eligible employees.

For example, they put 3000 instead of two.

This was an inadvertent error by the businesses concerned, however, the data was used by the ATO to calculate the number of employees they thought would be accessing the scheme and it was in the order of 6.5 million.

This number was then repeated by the government and by senior Treasury officials as recently as Thursday in front of the COVID-19 parliamentary committee.

Importantly, this incorrect data was not used to determine payments by the ATO; it therefore did not lead to underpayments or overpayments.

Payments by the ATO were based on Tax File Numbers, which are verifiable, and other data submitted by the businesses.

The fact that the expected cost of JobKeeper, a demand-driven program, is $70bn, not $130bn, is good news for the taxpayer.

This will reduce the government’s borrowings by $60bn.

With the nation’s debt bill already standing at $650bn, and all new spending initiatives during the pandemic debt financed, any opportunity to keep debt lower is welcomed. The reduced number of people on JobKeeper is also a positive sign for the economy as more people remain in work without the need for support from the government.

In the words of Treasury, it reflects “some improvement to the outlook”.

Indeed, consumer confidence has recovered more than 70 per cent and the ASX 200 more than 60 per cent from their lows, and the Australian dollar has increased more than 10 cents from its fall in March.

Despite this, and the gradual opening up of our economy, the government recognises the need for ongoing support as we move to recovery.

That there are 5.1 million workers, almost half of the nation’s private sector workforce, estimated to be either on JobKeeper (3.5 million) or JobSeeker (1.6 million), illustrates the size of the task ahead. We know that some sectors may not recover as fast as others, like tourism, due to our international borders remaining closed, and this may require additional support.

However, there are no plans for wholesale changes to the eligibility criteria under JobKeeper.

Treasury will review the program next month, but with full-time and part-time workers, sole traders, long-term casuals and the not-for-profit sector already benefiting significantly from the program, its eligibility is expansive.

Predictably, the opposition is calling for the government to borrow more and spend more taxpayer money.

When the program was costed at $130bn, the opposition wanted to spend more; at $70bn, it wants to spend more.

Labor always wants to spend more, that’s why it always needs to tax more.

The irony is, if it were a Labor program, it would have costed it at $70bn and spent $130bn.

Labor has form, whether it was the mining tax, which Labor forecast to raise $50bn that ended up raising less than $500m, or Wayne Swan’s last three budgets, which missed their forecast by $70bn, Labor is in no position to grandstand about the accuracy of forecasts, particularly ones that were made in the midst of a once-in-a-century global pandemic.

With respect to JobKeeper, it is clear two things have happened that explain recent developments.

First, Treasury’s forecast made at the high point of the pandemic here, that 6.5 million workers would be covered by the program, has been revised downwards to 3.5 million in light of progress on the health front and less stringent restrictions being put in place.

Second, a reporting error in business data reported to the ATO led to an incorrect estimate by the ATO of the number of people expected to be covered by the program.

While regrettable, it had no consequences for payments under the scheme.

Nor does it detract from the vital importance of JobKeeper for hundreds of thousands of businesses across the country like South End Social, a local cafe in Gosford, whose owner said that without the JobKeeper payment “my cafe would still be closed and I would have had to let go of my hardworking staff”.

No wonder the Business Council of Australia called JobKeeper a “country-saving moment”.