Blunder? What blunder? Good news on JobKeeper opens ways for further stimulus

Thanks to Treasury’s $60 billion JobKeeper overestimate, we’ve all just been given a lesson in policymaking on the run. Fortunately, it’s one that gives the government more options for managing the economic recovery from lockdown, not fewer.

Despite everything you’ve read and heard in the media — even good journalists and Coalition cheerleaders misreported this — there was no $60 billion “blunder” about JobKeeper. If you read the (poorly worded and structured) Treasury media release, you’ll see why.

The revised cost of JobKeeper to $70 billion has nothing to do with the error by 1000 or so businesses filling out the form (which suggests a badly-designed form) but rather:

…partly reflects the level and impact of health restrictions not having been as severe as expected and their imposition not having been maintained for as long as expected at the time. This has been reflected in some improvement to the outlook for the economy since the original estimate was developed as a consequence of these and other factors. The variation in estimates also reflects the inherent uncertainty associated with estimating the take‑up of a demand driven program in the current circumstances.

That is, JobKeeper was crafted when the government was assuming an extended lockdown, a large death toll and lots of pressure on the health system. Fortunately, we’ve come through the worst of it relatively quickly, so the number of businesses that have been affected to the extent that they become eligible for JobKeeper is much smaller.

Why Treasury left that to the bottom of the media release, and opened its statement with clerical errors by applicants, is anyone’s guess, but it led people to connect the overestimate of affected employees to the overestimate of the program cost, when the two are unrelated. Labor is having a field day with the blatant lie that it’s all some kind of “blunder”.

Bear in mind how quickly JobKeeper was put together. The government went from mocking wage subsidies to embracing them in less than a week, announcing the JobKeeper package on March 30. That was just eight days after the second stimulus package and 18 days after the first. And the criticism of the government at that point wasn’t that it wasn’t getting the details right, it was that it was taking too long to intervene. No one was too fussed about the program details when we seemed on the verge of an economic catastrophe.

Now, the government is being bagged because it didn’t get the details right. Well, you can’t have it both ways. It turns out, you really do need time to develop a colossal economic support program properly.

What the overestimate suggests, though, isn’t merely that the lockdown was shorter and less intensive than expected, but that some of the hard limits on accessibility to JobKeeper weren’t appropriate — in particular, the 30% revenue reduction threshold for smaller firms and 50% for bigger ones; the prohibition of long-term casuals attached to a business for less than a year; the effective ban on universities.

In designing any demand-driven program, you have to set thresholds for eligibility. Where they end up is part ideology, part sensible management, part design to fit an arbitrary funding allocation. And they interact with your basic assumptions.

If JobKeeper had been designed for a shorter lockdown period, the eligibility thresholds could have been more generous.

Businesses that incurred very large revenue losses but fell short of the 30% or 50% thresholds could have received assistance they aren’t currently receiving — which is particularly unfair given some very large companies have been able to arrange their affairs in order to access JobKeeper.

Long-term casuals who have only been working with a current employer for nine months could have been eligible.

The treatment of universities seems to have been outright vindictive, given the government is now bending the rules to allow its ideological fellow-travellers in the private university sector to access JobKeeper. Having failed to properly fund universities and instead encouraged them to rely on foreign student income (some recklessly so) the government has stood by and done nothing as foreign student income collapsed — beyond telling foreign students to go home.

The government, naturally, is now under pressure to adjust its JobKeeper thresholds to help those who are currently missing out. Others are urging it to keep its fiscal powder dry until the trajectory of the recovery becomes clearer (or to not spend it at all). It’s something of a false choice — preventing a deeper contraction now will reduce the need for greater stimulus in coming quarters and, to the extent it prevents further damage to consumer and business confidence, might enable a quicker recovery.

However, the overestimate does take a lot of the (self-imposed) pressure off the government to shutter its support programs in September, which threatens to send the recovery off a cliff. Having rushed the introduction of JobKeeper, there’s now less of a need to rush its closure, or to send hundreds of thousands of unemployed people back to the miserable pre-COVID level of unemployment benefits.