JobKeeper supports more than a million workers. It's over … so what happens now?
The coming weeks could bring on the biggest economic shock since the pandemic itself, with the end of the $90 billion JobKeeper wage subsidy scheme. Business owners, bureaucrats and insolvency experts are cautiously awaiting the fallout.Key points:
- The $90b JobKeeper wage subsidy scheme has ended, with a million workers still relying on it
- JobKeeper may have been propping up businesses that won't survive
- Insolvencies are set to rise as the support ends
"JobKeeper has been very, very helpful for us, the saving grace for us really," said businessman Steve Khan, sitting in the plaza of 'Little India' in Dandenong, one of Melbourne's outer-suburban hubs.
"Our cafe and hairdresser shop were shut for virtually seven to eight months, continuously.
"We had no income at all, not even a cent coming into the till. If JobKeeper had not been there it really would've been a disaster for us."
Insolvency laws were essentially placed on hold during the pandemic, due to the rolling uncertainty and how difficult it was to predict future business.
As a result, the number of companies winding up halved in 2020, despite Australia being in its first recession in three decades.
Those "safe harbour" provisions have ceased, and the end of JobKeeper will now force many marginal businesses to close for good.
"There will be a whole raft of workers that don't have jobs to go back to, because their employer has ceased to trade, their retail shop is no longer trading, the cafe has never been re-opened," said Adrian Hunter, partner at insolvency and turnaround firm Brooke Bird.
These so-called 'zombie' businesses – seemingly alive but actually dead – will likely finish up when JobKeeper does, according to Mr Hunter.
"I certainly expect there will be a vast number of people who have seen the writing on the wall," he told The Business.
"They've known about it, that they're on JobKeeper, and then it's going to be a frantic race to try and find work. Where that comes from? I don't know."Mega-money support
JobKeeper helped keep the Australian economy afloat, as whole industries were forced to close to stop the spread of coronavirus.
JobKeeper initially gave businesses $1,500 per fortnight per employee to help pay the wages.
It aimed to keep a connection between workers and employers, allowing a faster recovery when the health crisis was under control.
It also kept the unemployment rate from spiking, with workers considered 'employed' even though they were being paid by taxpayer funds, in many cases to work zero hours.
At one point, almost a third of Australian workers were on JobKeeper – 3.6 million employees, out of a work force of around 13 million.
The number of workers requiring it has fallen as the economy has recovered: to 1.6 million in October, 1.5 million in December and 1.1 million in recent months.
"This has always been a temporary program, this was always an emergency payment," Treasurer Josh Frydenberg told ABC News Breakfast last week.
"And, at $90 billion, it's the single largest economic support program that any Australia government has ever undertaken."
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Treasury believes up to 150,000 workers will move from JobKeeper into unemployment now that the wage subsidy has wound up.
"We are continuing to closely monitor the situation in different sectors and do expect that the end of the JobKeeper program will lead to some businesses closing and jobs being lost," Treasury secretary Dr Steven Kennedy told a Senate estimates hearing last week.
Dr Brendan Rynne, chief economist at consulting firm KPMG, believes the number will be closer to 100,000 workers – one in ten of those still on JobKeeper.
"[Which] while still significant, is much more manageable in a strengthening economy," he added.Going under
Suspending insolvency laws helped companies ride out the turbulence of the pandemic. But it has also propped up unprofitable businesses, and potentially masked a big problem.
The average number of businesses entering administration annually was just over 9,300 prior to the pandemic, according to figures from the Australian Securities and Investments Commission (ASIC).
The regulator's figures for last year show just 4,943 companies went under – a slump so substantial that insolvency practitioners like Adrian Hunter's company themselves relied on JobKeeper to stay afloat.
"It enabled us to keep all of our employees on the payroll, engaged in in their day-to-day activities with the business," he said.
"We didn't lose our experienced staff and I think that was replicated across many Australian businesses, through JobKeeper."
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In a situation mirrored in many businesses, the wage subsidy allowed Brooke Bird to restart quickly when demand for services resumed.
Without it, finding and reemploying skilled staff would have been difficult, Mr Hunter added.
"But how long can how long can it keep going?" he queried.
"JobKeeper's not a panacea that can go on for twelve months, 18 months. Because at the end of the day the rest of the economy is trying to prop up those businesses, waiting for the rebound."
Restructuring and insolvency expert Kirsten Farmer expects a "gentle wave" of rising insolvencies, not a rocketing surge.
"It won't be immediate," she said.
"It will be a gentle and manageable process, because during this period of time – when JobKeeper has been available – some businesses have been storing their cash."
Ms Farmer, a partner at law firm Mills Oakley, said the biggest 'red flag' was obvious.
"[Companies] that have been relying solely on JobKeeper, those are the ones that will collapse immediately," she observed.
"But the others? There will be a gentle slow work out of what their position is.
"What we're hoping to see in this time is for those companies that do have some cash and do think they can hang on to go and get some expert advice, sooner rather than later."Uneven recovery
The economy is recovering, but unevenly. Industries based in the centre of capital cities, or that rely on foot traffic, mass gatherings, international students and tourism are still reeling from the impact of the pandemic.
With JobKeeper winding up, which postcodes have been most reliant on it and how many businesses will struggle to survive without it?Read more
Of the one million workers still receiving JobKeeper, 388,986 of them are in Victoria, which suffered a long lockdown in 2020.
Cairns in far north Queensland has one of the highest numbers of residents on the wage subsidy outside of the capitals.
"It will be a kick in the guts, a challenge, but there are other sectors that are doing reasonably well out there," said Sally Mlkito, president of the Cairns Chamber of Commerce
"The JobKeeper policy has been a great foresight by the team of people who put it together, it's been the backbone of this whole country for the past 12 months now.
"It's given [people] hope, belief, gratitude that the government was there to help them channel our taxpayer money to support people."
Mrs Mlkito, who runs a large recruitment company, would like to see the subsidy continue for employers in areas like hers, impacted by the cratering of the international tourism market. But she concedes it is over.
"At some point we have to stand on our own two feet, even though it's going to be very difficult."
The federal government has launched a $1.2 billion tourism-focused package that, amongst other measures, will pay half the price of nearly 800,000 airline tickets to destinations, including Cairns, encouraging Australians to travel domestically.More to come
Insolvency practitioner Adrian Hunter doesn't expect the level of "shock and awe" usually associated with the surprise collapse of a major retail chain, triggering disbelief in staff and fear in suppliers and creditors.
"[Many] of these businesses haven't traded since last year … so I expect to see a slow ramping up of insolvencies of those companies start to come through," he predicted.
"But the 'surprise factor' of those businesses not returning? The creditors have largely probably factored that in.
"They've driven past that shop, that outlet, 'Yep, they've moved on' and they've already adjusted their own business to realise that that debt's not going to be recoverable.
"They're just sort of waiting for the bell to ring."
Businessman Steve Khan is still weighing his options.
He shut his grocery store early in the pandemic. The hairdresser and café remain open. But from 13 employees just over a year ago he is down to just five.
With more people working from home, and no large weddings drawing crowds of brides to the nearby dress shops, trade is just a fraction of what it was.
"We will be struggling. People are still sceptical of coming out, of dining… we will have to lay off a couple of people," he said.
"JobKeeper was there and that sort of kept us going … I wish that it would have continued, even on lower payments, for another six months or something.
"That would've been very helpful for us, it would have helped us get back onto our feet."