Coalition to overhaul jobkeeper and jobseeker Covid-19 subsidies by cutting support rates

By Katharine Murphy Political editor

The Morrison government will reduce the level of income support paid out under the jobkeeper and jobseeker payments from 28 September, and create two payment tiers for the wage subsidy to ensure the rate aligns more closely with people’s pre-Covid income, rather than giving part-timers and casuals a pay rise.

The overhaul will be unveiled by Scott Morrison and Josh Frydenberg on Tuesday ahead of an economic statement the government will deliver on Thursday. As well as lowering the rate of both the jobkeeper wage subsidy and the $550 coronavirus supplement in jobseeker after September, the government will tighten the eligibility requirements for both payments – including retesting businesses in October.

The government will confirm the jobkeeper payment will run through until March 2021, consistent with the timeframe of a separate wage subsidy for apprentices unveiled in a skills package last week.

The long-telegraphed overhaul follows a review by the Treasury. The department examined the income support rolled out during the pandemic in May and June, and handed its recommendations to the government on 29 June. The Treasury advice has not been released, but the government circulated its own summary extracts of the advice ahead of Tuesday’s announcement.

According to that summary, Treasury told the government there were “compelling arguments” to maintain jobkeeper in its current form until 27 September because businesses had made plans based on the availability of the wage subsidy for six months and “there are risks in withdrawing support from those that have begun to recover”.

Treasury appears to have contemplated a transition where jobkeeper would be restricted to the sectors worst affected by the pandemic, but concluded it would be too difficult to define those in advance.

Instead, officials said the government should retest all businesses in October. Under the original scheme, most businesses had to project they would suffer a 30% drop in turnover to be eligible. Treasury has suggested that system be replaced by measured or actual turnover change.

The department noted the wage subsidy had done its job in the opening months of the crisis, but the payment had a number of features that “create adverse incentives” including distorting wage relativities between lower and higher paid jobs, dampening incentives to work, hampering labour mobility and keeping businesses afloat that would not be viable without ongoing support.

While identifying the problems, Treasury’s advice about reducing the payment was hedged, according to the summary. “It may … be appropriate at this juncture to consider reducing payments to wean off businesses from ongoing support.”

Treasury, according to the curated extracts, was firm that the subsidy should continue, noting the case for extending jobkeeper beyond September was “strong, especially if coupled with a fresh eligibility test that targets support to those businesses and sectors that continue to need it”.

The current payment under jobkeeper is $1,500 a fortnight. Guardian Australia understands the payment will continue to be worth more than $1,000 for most recipients after Tuesday’s cut. While the government is not expected to cut the jobseeker payment back to Newstart levels, the size of the cut remains unclear. Treasury says what happens to the payments should be aligned.

Research from the progressive think tank the Australia Institute has said axing the coronavirus supplement in the jobseeker payment would push more than 650,000 Australians into poverty – including 120,000 children under the age of 14 – and welfare groups are urging the government to tread carefully, given the unemployment rate currently stands at 7.4%.

Morrison told reporters on Monday the government would deal with winding back income support in stages.

“We have to look our supports and our programs as a series of phases, and how many phases there are, it is very difficult to say, because there are so many uncertainties associated with Covid-19.”

He said the adjustment to be announced on Tuesday would not take effect until the end of September, giving businesses time to adjust to the new conditions. Morrison said businesses hit by the pandemic would continue to get support from the government.

In a statement on Monday, Frydenberg said the jobkeeper payment had met its objectives, preventing widespread business closures and “putting a brake on the job losses that commenced in the second half of March”.

“Jobkeeper has been an economic lifeline to millions of Australians and that lifeline will be extended for those businesses that need it most.”