Fixing JobKeeper’s flaws would be a sign of leadership not weakness

My keenest post-COVID wish is for the end of binary politics.

The Australian public’s response to COVID-19 has demonstrated our collective capacity for nuanced thinking; the ability to hold two competing concepts in our head at once, to make rational choices while accepting that we are doing so in a context of uncertainty.

Imagine if our politicians took notice of that proof and acted on it?

A good starting point would be for the Morrison government to acknowledge what we all know already about its JobKeeper program: that it was a good-ish response under the circumstances to a clearly urgent need, that it has design flaws and unintended consequences (most obviously, that they overestimated the numbers to the tune of $60 billion), and that openly accepting that those problems exist and moving to fix them now would not be taken by the public as an admission of failure but rather a model of constructive leadership.

Some of the issues with JobKeeper have been loudly advertised: particularly the million-plus workers who miss out, along with international students and the whole university sector. The revelation that the scheme is covering only 3.5 million workers, not the advertised 6.5 million, has damaged its authors’ credibility and is creating justified pressure for wholesale changes.

There is another design problem that has had relatively little attention: the powerfully perverse disincentives built into the model that risk warping corporate behaviour in a way that is antithetical to the recovery JobKeeper is meant to promote.

The decision to create a single cut-off point for JobKeeper eligibility — 30% revenue downturn for most businesses, 15% for non-profits — was understandable in concept. In theory, it’s easy for businesses to determine their own eligibility and for the ATO to police.

In practice, if you’ve been on the ATO site and tried to understand how JobKeeper works, it’s anything but straightforward. Even giving full credit for this being policy administration done on the run, I assure you it would do your head in. So, no ticks for simplicity.

The bigger concern can be illustrated by the case of a hypothetical small business with a workforce of 50 employees and a turnover of $10 million a year.

JobKeeper eligibility for such a business depends on it recording a revenue reduction, compared to the previous year, of 30% in any individual month from March on, or in a quarter. If it hasn’t been eligible as yet, and its revenue in May 2019 was $1 million, then it will become eligible this month if its revenue for May 2020 is below $700,000.

Once you achieve eligibility, you collect JobKeeper at the rate of $1500 per fortnight for every employee, through to September. That’s even if your 30% revenue shortfall was for only one month.

With 50 employees, the business would save about $162,500 each month, or over $800,000 between now and September. That’s huge, for a business of that size.

It gets better. The code of conduct for commercial leases, which most of the states have legislated, applies the same eligibility threshold. If you get to 30%, you can expect to be able to negotiate a 30% rent reduction from your landlord too.

Here’s the problem though: if you only suffer a 29% reduction in revenue year-on-year, you get nothing. 25%, nothing. 20%, nothing.

The difference in bottom line terms is stark. If there were two identical businesses in terms of revenue and overheads, one of which suffered a 25% revenue downturn and the other 30%, then the JobKeeper subsidy will result in the one with the 30% loss making a substantially higher profit than the business that only dropped by 25%. It’s not just a subsidy in that case, it’s a windfall gain.

This inequity is then compounded by the fact that JobKeeper, once it kicks in, stays in place through to September even if the business goes back to its usual revenue level or even higher.

The temptation is obvious: tank your revenue for one month so that you make the JobKeeper threshold, then the government will throw money at you no matter what happens subsequently.

The government says that won’t happen, because the ATO is on the beat and will detect any artificial manipulation engaged in by businesses to game the program. Anyone caught out will face having to pay back the subsidy and potential criminal penalties.

Yeah sure, but even putting aside the overt fraud risk, why design a program, the sole purpose of which is to prop up businesses temporarily so they don’t go broke, in a way that positively incentivises them to do badly?

And why put in hard cut-offs at arbitrary levels, so that eligibility or non-eligibility is essentially a matter of random chance?

Clearly, there would have been better alternatives and it is not too late to adjust JobKeeper to make it far fairer and aligned to legitimate business imperatives. A universal basic income approach would have been one option; another would be to create a phasing in of the eligibility criterion, rather than a hard threshold.

It would also have been sensible for the government to recognise that a business’ revenue tells us nothing about its profit. Businesses operate on profit margins of anything from 1% to 60% or even more, depending on the trade they’re in. Revenue is a brutally arbitrary measure of their prospects for surviving the COVID-19 recession.

Speaking as a business owner, I’m not particularly critical of the government’s responses to this economic crisis, so far. They’ve done their best and it hasn’t been terrible. It’s legitimate, though, to at the same time argue that it’s been too slow, not enough and badly in need of adjustment.

I really hope the government is listening.