Introductory Info

Date introduced: 7 October 2020
House: House of Representatives
Portfolio: Treasury
Commencement: The day after Royal Assent.

Purpose of the Bill

The purpose of the Economic Recovery Package (JobMaker Hiring Credit) Amendment Bill 2020 (the Bill) is to amend the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (the Payments and Benefits Act) to enable payments to be made to help improve people’s prospects of gaining paid employment or to increase workforce participation, between 7 October 2020 and 6 October 2022.

The Bill also allows for the establishment of a scheme related to one or more of the payments intended to help improve people’s prospects of gaining paid employment or increasing workforce participation.

Background

The Bill seeks to give effect to the JobMaker Hiring Credit that was announced as part of the
2020–21 Budget.[1] The details of any scheme created under the Bill will be contained in rules rather than in the Payments and Benefits Act. What the Bill enables is broader than the measure announced in the Budget.

The JobMaker Hiring Credit is a wage subsidy program for people up to 35 years of age. The Government expects the measure to cost ‘$4.0 billion over three years from 2020–21’.[2]

Under the JobMaker Hiring Credit, eligible employers who are able to demonstrate that a new employee is additional (by proving a higher employee headcount and payroll) will receive a credit of up to $200 per week for employees aged 16 to 29 years and $100 per week for an employee aged 30 to 35 years.[3] The credits, which are claimed quarterly in arrears by the employer, are paid for a period of ‘up to 12 months’.[4] In order to qualify for a credit, a job seeker must have worked ‘a minimum of 20 hours per week, averaged over a quarter’, and have been in receipt of a working age income support payment for at least one month out of the three months prior to their being hired.[5] Job seekers are able to be employed on a permanent, casual or fixed-term basis.[6]

Treasury estimates suggest that the JobMaker Hiring Credit will support around 450,000 positions for young people, resulting in around 45,000 additional jobs.[7]

Further details on the JobMaker Hiring Credit are set out in the Government’s fact sheet and the Treasury submission to the Senate Committee inquiry into the Bill.[8]

The stated objective of the JobMaker Hiring Credit is to help ‘accelerate growth in the employment of young people during the COVID-19 recovery. This will improve their economic, health and social outcomes and reduce the scarring from long term unemployment’.[9] Essentially, the JobMaker Hiring Credit seeks to create additional jobs and reduce the risk of young people becoming dependent on income support by providing an incentive to employers to bring forward their recruitment decisions and fill new positions with young people.[10]

The targeting of the JobMaker Hiring Credit towards young people is also in recognition of the fact that this group has been disproportionately affected by the impact of the COVID-19 pandemic, compared with other age groups.

Youth employment and unemployment, post-COVID-19

People in younger age groups have been the most affected by COVID-19, with larger decreases in employment and bigger increases in unemployment than other age groups. This is in large part because the youth labour market is characterised by higher levels of employment in service industries that require close interaction with consumers. It is these businesses that have been hardest hit by the COVID-19 restrictions.

Employment for people aged 25 to 34 years fell by 157,300 (or 5.1 per cent) between March and September 2020 while employment for people aged 15 to 24 years fell by 149,600 (or 7.7 per cent). There have been signs of a modest recovery in employment for those aged 15 to 24 years more recently with an increase of 31,600 in the two months to September 2020. However, there are fewer signs of improvement for those aged 25 to 34 years (up 5,400). See Chart 1.

Total employment fell by 425,100 or 3.3% in the six months to September.

Chart 1—change in employment by age—March to September 2020

Source: ABS, Labour Force, cat. no. 6202.0, Table 22, seasonally adjusted

People aged 25 to 34 years recorded the biggest increase in unemployment between March and September 2020 (up 78,500 or 50.9 per cent) with only a very small decline (of 2,600) in the most recent two months. Young people aged 15 to 24 years experienced the next biggest increase in unemployment (up 47,600 or 18.7 per cent) in the six months to September 2020 but a substantial fall in unemployment for this group has occurred in the past two months (at 41,300). See Chart 2.

Total unemployment reached just over 1 million in July 2020 but has since fallen to 937,400 in September. Total unemployment is up by 221,600 or 31.0 per cent since March.[11]

Chart 2—change in unemployment by age—March to September 2020

Source: ABS, Labour Force, cat. no. 6202.0, Table 22, seasonally adjusted

People aged 15 to 24 years experienced the largest increase in their unemployment rate (up 2.9 percentage points to 14.5 per cent) followed by those aged 25 to 34 years (up 2.6 percentage points to 7.3 per cent). See Chart 3.

Chart 3 —change in unemployment rates by age—March to September 2020

Source: ABS, Labour Force, cat. no. 6202.0, Table 22, seasonally adjusted.

Committee consideration

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 6 November 2020.[12]

Policy position of non-government parties/independents

Australian Labor Party (Labor)

Labor has criticised the JobMaker Hiring Credit scheme on a number of grounds.

Shadow Employment Minister, Brendan O’Connor, has expressed concern over the lack of detail—and, in particular, the lack of safeguards—in the Bill. Relatedly, Mr O’Connor has criticised the open nature of the Bill, which allows for the Treasurer to create new employment schemes that could result in the Government ‘directing payments to specific and politically favourable companies, donors or electorates’.[13]

Another issue raised by Mr O’Connor has to do with the interaction between the JobKeeper subsidy and the JobMaker Hiring Credit. He appears to be concerned that, following the removal of the JobKeeper subsidy, many businesses will not be in a position to increase their employee headcount above previous levels and thus gain access to the hiring credit.[14]

Mr O’Connor has insisted that Labor needs to see further details relating to the operation and integrity of the scheme, including details of safeguards to ensure against older workers being replaced by younger, subsidised workers, and Treasury modelling of its likely impacts.[15]

The Greens

The Australian Greens are highly critical of the JobMaker Hiring Credit.

Adam Bandt has argued that, under the scheme, taxpayer monies that could be directly invested in creating jobs and lifting wages will instead be used to part-pay large corporations’ wage bills.[16]

Mr Bandt has also criticised the lack of protections and safeguards in the Bill.[17]

Position of major interest groups

Business groups

Judging by submissions to the inquiry into the Bill and media statements, many larger Australian businesses and business representative organisations are, on the whole, supportive of the JobMaker Hiring Credit.[18]

For example, the Australian Chamber of Commerce and Industry (ACCI) has stated that ‘as a key policy of the Federal Budget, the JobMaker Hiring Credit is a welcome, practical measure to help address rising youth unemployment which has been exacerbated by the COVID pandemic’.[19] ACCI chief executive James Pearson is said to have stated that the JobMaker Hiring Credit would ‘tip the balance for many employers in favour of putting someone on … wage subsidies will have a particular impact in industries where restrictions are easing but growth is slow or inconsistent. Accommodation and food services firms have shed around 140,000 jobs since March. They will need to hire staff as more restrictions are eased’.[20]

Business support for the hiring credit is not universal, however, with the Council of Small Business Organisations Australia (COSBA) having expressed a number of concerns with the scheme from the perspective of small and medium sized enterprises (these are canvassed in the Key issues and provisions section below).[21]

Unions

Australian unions have highlighted a number of perceived concerns with the Bill and the JobMaker Hiring Credit scheme.

Chief among these are that the scheme’s safeguards are insufficient to ensure against employers ‘rorting’ the scheme, and are to be specified in rules rather than the Bill, and that the scheme, as it is currently configured, will result in an increase in part-time and insecure work.[22] Further details of Australian unions’ positions are outlined in the Key issues and provisions section, below.

Australian Council of Social Service (ACOSS)

ACOSS is broadly supportive of the JobMaker Hiring Credit. It has recommended a number of changes to the scheme, the most substantive of which are a proposal to target credits based on duration of unemployment and to increase subsidies for positions offering longer hours.[23] For further details of ACOSS’ position, see the Key issues and provisions section.

Financial implications

The Explanatory Memorandum estimates that the JobMaker Hiring Credit program enabled by the Bill will involve a cost of $4.0 billion over the 2020–21, 2021–22 and 2022–23 financial years.[24]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[25]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee had no comment on the Bill.[26]

Key issues and provisions

The Payments and Benefits Act was legislated primarily to enable the provision of payments under the JobKeeper Payment scheme.[27] The Bill essentially extends the payments that can be made under the Payments and Benefits Act so as to give effect to the JobMaker Hiring Credit scheme.[28]

Item 3 inserts proposed subsection 7(1A), the effect of which is to enable the Commonwealth to make rules that provide for payments to help improve people’s prospects of gaining paid employment or to increase workforce participation during a relevant period. Item 2 of the Bill inserts the definition of the term relevant period into section 6 of the Payments and Benefits Act. This will be the period between 7 October 2020 and 6 October 2022. Proposed subsection 7(1A) provides for the making of rules about the establishment of a scheme related to one or more of the payments enabled by the Bill.

Lack of program detail and protections in the Bill

Some stakeholders have expressed concern about the lack of detailed information on the JobMaker Hiring Credit, and safeguards against its misuse by employers, in the Bill.

According to the Explanatory Memorandum:

Rules will be made by the Treasurer to establish the JobMaker Hiring Credit scheme, including setting out:

• which employers qualify for the payment;
• the employees to which payments relate;
• the amount payable and timing of payments; and
• the obligations for recipients of the payment.[29]

The rules would take the form of a legislative instrument.[30]

Section 42 of the Legislation Act 2003 allows for the disallowance of legislative instruments by Parliament. A legislative instrument can be subject to disallowance if either a Senator or Member of the House of Representatives moves a motion of disallowance within 15 sitting days of the day that the legislative instrument is tabled. The motion to disallow must be resolved or withdrawn within a further 15 sitting days of the day that the notice of motion is given. However, if there is no notice of motion to disallow a legislative instrument, then there is no debate about its contents.

The Scrutiny of Bills Committee examines each Bill introduced into the Parliament with regard to, among other things, ‘whether any delegation of legislative powers is appropriate’ and ‘whether the exercise of legislative powers is subject to sufficient parliamentary scrutiny’.[31] The Committee has not yet reported on the Bill.

The Government appears to have chosen to include program rules and requirements in a legislative instrument rather than the Payments and Benefits Act itself largely as a means to increase its ability to respond to changing circumstances. According to the Treasury submission to the inquiry into the Bill, ‘implementing the policy design through rules will provide flexibility to respond to any unintended consequences, and a rapidly changing labour market, while still allowing consultation to ensure that the rules will work as intended’.[32]

The question is: has an appropriate balance been struck between the need to allow for flexibility in the scheme and the need for Parliamentary oversight and strong protections against potential employer exploitation?

Issues associated with wage subsidies

Perhaps the main issue associated with wage subsidy programs is that they can potentially have distortionary displacement effects. For example, subsidies may be associated with ‘deadweight effects’, as employers hire job seekers with a wage subsidy that they would have hired anyway.

Another problem is that wage subsidies can result in worker substitution, with job seekers eligible for the subsidy being hired at the expense of existing workers and other job seekers who are not eligible for a subsidy. Sometimes wage subsidies are used with the primary objective of achieving equity objectives and in these instances the substitution effect is less of a concern. However, in the case of the JobMaker Hiring Credit, the key objectives are additionality—the creation of new positions—and ensuring that young people do not remain on income support.

A further issue with wage subsidies is that they may lead to employers who do not take advantage of wage subsidies losing business to those that do.

A number of studies have found positive employment effects for youth wage subsidies, but this is very much contingent on the design and implementation of the programs.[33] If a wage subsidy program is to yield positive outcomes—in this case the creation of additional, lasting employment at a reasonable cost to government—then it is important that the program should be well designed.

According to labour market economist, Jeff Borland, among other things, wage subsidy programs need to:

• have subsidies that are matched to the state of the macro-economy (typically with higher subsidies in worse economic conditions)
• target those job seekers who are hardest hit in times of economic downturn (in this case, primarily young people who, as a result of their lack of employment experience, often have lower levels of initial productivity)
• be of sufficient duration to ensure that job seekers have an opportunity to gain work experience and skills and demonstrate their value to employers
• be structured to safeguard against potential employer exploitation
• impose minimum and maximum hours per week for which a subsidy would be paid and
• be as simple as possible to administer so as to maximise employer take-up.[34]

Are program safeguards sufficient to protect against worker substitution?

In its submission to the inquiry into the Bill, Treasury has provided details of JobMaker Hiring Credit scheme features that are calculated to ensure the scheme is not misused by employers, along with their rationale. The main features are:

• additionality criteria under which employers will be required to demonstrate that their staff head count and total payroll exceeds a baseline amount at 30 September 2020 (these criteria are intended to mitigate against the possibility of worker substitution)
• a requirement that the job be at least 20 hours a week averaged over a quarter and the spreading of the credit across 12 months rather than providing it up-front (to counter the risk of employers exploiting the scheme)[35]
• limiting eligible employees to those who have recently been on income support (to counter the possibility of businesses classifying independent contractors or family members as employees to claim the credit)
• requiring businesses to hold an Australian Business Number (ABN), be up to date with tax lodgement obligations, be registered for Pay As You Go (PAYG) withholding and reporting employee payroll information to the Australian Taxation Office (ATO) through Single Touch Payroll (STP)(to limit the risk of new businesses making non-genuine claims)
• not allowing new businesses to claim for their first employee (that could potentially be themselves)
• making payments in arrears (to ensure that scheme requirements are met before credits are paid) and
• use of the STP system to claim credits and ATO data matching with Services Australia.[36]

Treasury also notes that the Payment and Benefits Act contains integrity rules[37] that ‘authorise the Commissioner of Taxation to take action against contrived arrangements entered into to gain the benefit of the JobMaker Hiring Credit’, and that the unfair dismissal and general protections provisions of the Fair Work Act 2009 provide additional protections.[38]

The above protections are insufficient to allay the concerns of some critics of aspects of the proposed scheme. A number of submissions to the inquiry into the Bill have argued that the headcount and payroll additionality tests are inadequate to safeguard against worker substitution.[39] This is largely because, as Per Capita explains:

… because the stipulated minimum hours of employment to qualify for the scheme are just 20 per week, an employer could retrench one full time (40 hour per week) worker and hire two subsidised part-time or casual workers on a marginally increased hourly rate and still meet the additionality criteria under the scheme.[40]

Some commentators have proposed changes to the scheme that could help to deal with this potential problem. For example, ACOSS has recommended that hiring credits should be included when calculating a business’s overall payroll, thereby reducing any ‘financial benefit for employers from restructuring their workforce to take advantage of the subsidy (without actually increasing the paid working hours of employees overall)’.[41] ACOSS has also recommended that integrity measures used to reduce the risk of displacement in other wage subsidy programs should be included in the JobMaker Hiring Credit scheme’s rules.[42]

The Australian Manufacturing Workers’ Union (AMWU) has advocated that the scheme be amended to ensure that hours of employment for existing workers must not be reduced by any employer seeking to access the subsidy. It has also suggested that the problem of worker substitution could be partly solved by removing the incentive for business to hire workers on 20 hours a week.[43] Were such a change to be made then this would also help to address another significant concern with the scheme; namely, that it will result in an increase in insecure work.

Promotion of insecure work

In its submission to the inquiry into the Bill, Treasury provides the rationale for the 20 hours per week on average requirement:

This seeks to increase the work experience level of someone that was previously on income support, with a view to increasing their future longer term employment opportunities. This level of hours seeks to strike a balance between providing that opportunity, lifting overall employment opportunities, and making the subsidy accessible and attractive to employers to take on employees that may have less experience.[44]

In its current form, the hiring credit could indeed maximise employment opportunities for young unemployed people and reduce the number of income support recipients. However, a number of commentators have argued that this would be at a significant cost to many young workers, as well as to overall employment conditions, and, ultimately, the economy as a whole.

Under the scheme as it stands there is an incentive for employers to hire part-time rather than full-time workers as a means to maximise the number of credits claimed and reduce labour costs. This, some argue, will result in an increase in already high levels of part-time and insecure work, especially among young people.

For young workers in low paid jobs or to whom junior rates apply, the Australian Council of Trade Unions (ACTU) has expressed the concern that 20 hours a week of work will provide insufficient income to cover basic living expenses.[45] Per Capita has argued that by encouraging the creation of insecure, casual employment, the scheme’s design will ‘reduce the prospect of the creation of permanent full-time jobs, which our economy desperately needs to lift wages and productivity’.[46]

A number of proposals have been made for changes to the scheme that, it is argued, would help to create good quality jobs and an inclusive and sustainable recovery.

The AMWU has recommended that the scheme should be amended to pay higher credits to employers that offer good quality jobs—that is, jobs that are full- or part-time rather than casual or contract employment, well remunerated and ongoing. It has also suggested that the higher rates of subsidy could be paid to encourage improved employment conditions in industries that have traditionally relied on temporary visa workers, and to attract private sector investment in areas that are likely to drive future productivity.[47]

ACOSS has similarly argued that hiring credits—along with all other wage subsidies—should be doubled for positions averaging 30 hours a week or more. It argues that this change could be achieved ‘without imposing excessive administrative burdens on employers or the ATO’, given that ‘the scheme already requires information on average hours worked to enforce the minimum threshold of 20 hours a week’.[48] Per Capita has suggested that the incentive for employers to hire part-time and temporary workers could be reduced by reserving at least 60 per cent of the hiring subsidy ‘to apply only to new permanent part- or full-time jobs’, and by tapering the scale of the remaining 40 per cent of the subsidy according to the number of hours worked by subsidised employees.[49]

The Grattan Institute has proposed as an alternative to the JobMaker Hiring Credit a generalised incremental payroll rebate. Such a rebate would subsidise any increase in a business’s payroll expenditure by allowing a percentage of expenditure rebate on incremental payroll growth above a baseline point in time. As such, it would ‘encourage expansion of hours worked by existing staff, and would not bias job creation towards part-time instead of full-time roles’.[50] Professor Jeff Borland has pointed out that such a scheme could result in the subsidising of increased wages and not necessarily increased hours or numbers of people employed.[51] As such, it would not provide the same incentive to hire new employees that a measure like the JobMaker Hiring Credit does.

Discrimination against older workers and job seekers

A majority of submissions to the inquiry on the Bill acknowledge that young people have been particularly hard-hit by the COVID-19-related recession, and that, based on the experience of past economic downturns, they are likely to suffer the most from long-term consequences should unemployment remain at current high levels.

Nevertheless, a number of commentators have pointed out that a significant number of older Australians are also unemployed, and that they, too, are a vulnerable group in the labour market.[52] This is because, among other things, older people typically experience greater difficulty than younger people in re-entering employment once they become unemployed.[53]

As it stands, the JobMaker Hiring Credit scheme is likely to benefit young people at the expense of older job seekers. It offers an obvious incentive to hire younger job seekers rather than older job seekers.[54]

A solution to the bias inherent in the scheme would be to remove the age limit for the hiring credit, and this has been recommended by a number of stakeholders.[55] However, such a change would inevitably undercut the main objective of the scheme; namely, the creation of new jobs for younger workers who would otherwise struggle to gain employment and who are the most likely to suffer from the scarring effects of unemployment.

While it argues for the retention of some targeting towards young people (young people aged under 25 years who have been unemployed six months or more), ACOSS has recommended that the hiring credit should also be made available to all long-term unemployed job seekers (those unemployed for 12 months or more). Alternatively, it has suggested that the hiring credit could be targeted at young people under the age of 35 years and unemployed for six months or more, with existing wage subsidies being expanded through an uncapped subsidy pool.[56]

Likelihood of JobMaker Hiring Credit success

The hiring credit is intended to put businesses in a position to hire additional young employees. A key issue determining whether or not they are able to achieve this is if employers are able to pay wages before they receive the subsidy or are uncertain if prospective employees will reach the 20 hour benchmark.

Another important issue in determining the success or otherwise of the JobMaker hiring credit has to do with the trade-off between ensuring that additional jobs are being created (increasing administrative requirements) and maximising take-up of the subsidy.

The ACCI has argued that the less onerous eligibility criteria of the JobMaker Hiring Credit, when compared to the Youth Bonus wage subsidy, should see stronger take up of the hiring credit.[57]

However, while the hiring credit may be relatively appealing to large businesses, some smaller businesses may baulk at the administrative requirements associated with the scheme.[58] Judging by submissions to the inquiry on the Bill from the Council of Small Business Organisations Australia (COSBOA) and the Institute of Public Accountants (IPA), aspects of the scheme such as the quarterly reporting and additionality requirements may deter some small businesses from taking up the hiring incentive, without additional incentives.[59]

COSBOA claims that feedback from its member organisations:

… indicates that the Hiring Credit wage subsidies are too low. Given the apparent complexity of the Hiring Credit administration process, for small businesses in particular the subsidy amounts are insufficient to motivate additional hiring. If the Government’s goal is to motivate large-scale additional hiring by Australian businesses, to reduce unemployment by 450,000, COSBOA believes the subsidy rates will need to be at least 50% higher than the proposed amounts.[60]

ACOSS has proposed a potential means of both increasing JobMaker Hiring Credit take-up and reducing administrative costs to businesses. This would involve the use of a labour market intermediary (between employer and employee) to ‘help improve the matching of prospective employees and employers, offer any support required, and help preserve the integrity of the scheme’.[61] As ACOSS sees it, the use of intermediaries (such as jobactive employment service providers) could provide the ‘best of both worlds’ by combining ATO administration of the subsidy (including handling applications from employers) and use of intermediary organisations to recruit people on income support payments as potential employees and to offer any support needed by employers or employees to improve the prospects of a successful placement’.[62]

Concluding comments

Young people are typically harder hit by economic downturns than are mature age people, and the COVID-19-induced recession is no exception.

In this context, it is clear that something needs to be done to tackle the immediate problem of youth unemployment, and the possibility that it may become long-term.

Wage subsidies can help to encourage the hiring of disadvantaged job seekers by firms, but this is highly dependent on the state of the economy and the design and execution of wage subsidy programs.

In the case of the JobMaker Hiring Credit, for which a key objective is additionality, a balance needs to be struck between protecting against worker substitution and ensuring that administrative requirements are not so onerous as to discourage businesses from taking up credits.

To the extent that the JobMaker Hiring Credit scheme is specifically targeted at young people, it will, by definition, disadvantage older job seekers, to some extent.

A number of submissions to the inquiry into the Bill have made suggestions and proposed changes that could enable the scheme to better achieve its objectives and encourage employers to offer workers more hours.