2.1
This chapter considers the views received by the Senate Economics Legislation Committee (the committee) on the Coronavirus Economic Response Package Amendment (Ending JobKeeper Profiteering) Bill 2021 (the bill) which seeks to amend the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (the Act) which provided the authority for the JobKeeper Payment scheme.
2.2
As noted in Chapter 1 of this report, the committee received seven submissions and undertook two public hearings.
2.3
Only one submission dealt with the definitional matters outlined in Item 1 of the bill. All other input addressed Item 2 proposals, which included the proposed section 19A on defining profiteering and deferring input tax credits and the proposed section 19B on the requirement for the Commissioner of Taxation to publish JobKeeper information.
2.4
Whilst the publication of entities' JobKeeper information was viewed favourably, the retrospective nature of the deferral of input tax credits for large entities that profiteered off JobKeeper payments was considered a shortcoming. Specific concerns and recommendations were also raised to improve the drafting of the bill and its operation.
Overview of comments on the bill
2.5
Generally, submitters agreed with the bill’s overall intent and noted that there was a community expectation that firms which do well ought to consider repaying the Jobkeeper payments.
2.6
Officials from the Department of the Treasury told the committee that ‘about a million business’ had received the JobKeeper payments which had been heavily weighted to small businesses:
Around 90 per cent of businesses that received JobKeeper payments had a turnover of below $2 million. Another six per cent had a turnover of between $2 million and $10 million, and another 1.4 per cent had a turnover of between $10 million and $50 million. Those numbers relate to the first six months of the JobKeeper program.
2.7
Treasury’s Deputy Secretary, Ms Jennifer Wilkinson outlined the background and the intention of the JobKeeper scheme during the committee’s second public hearing, advising that,
JobKeeper was introduced—just in terms of how unbelievably uncertain the environment was, both from the health and an economic perspective. We had confidence which had dropped to record lows, both business and consumer confidence, and we had a very uncertain outlook for the unemployment rate.
…
JobKeeper did a number of things. It kept businesses connected to employees—the wage subsidy component. It was also providing income support to individuals. If you recall, individuals who were not working any hours with a business could receive JobKeeper through the business rather than joining the unemployment queue. JobKeeper also provided broader macroeconomic support and, in our view, was an important element in stabilising confidence and stabilising the decline in the economy at that time.
2.8
Mr Dean Paatsch, Director, of Ownership Matters (OM), a proxy and governance risk adviser to institutional investors, told the committee that OM became interested in the JobKeeper program upon learning that 'the Treasury had designed the wage subsidy so that three-quarters of the benefit would accrue to shareholders and thus have the potential to materially affect the results of the ASX 300 companies that we analyse.'
2.9
The Australian Shareholders' Association (ASA) stated in their submission that each year prior to the Annual General Meeting season, it publishes ‘focus’ guidance 'as a way of ensuring companies are aware of our expectations.' The ASA shared its focus for this year:
For 2021, the focus issue relating to remuneration reporting is relevant to this Bill:
“The impact of COVID-19 on companies and their executive remuneration should be examined. Companies should give close consideration to repaying Government-funded COVID-19 payments before rewarding executives or paying dividends.”
2.10
The Commissioner of Taxation, Mr Chris Jordan from the Australian Taxation Office (ATO) stated that as part of the development of the scheme it had designed compliance assurance mechanisms that enabled it to undertake checks to ensure that those who received the payment were eligible and for those that weren’t eligible, the payment was recovered. Mr Jordan explained:
We did our compliance intervention on 1,600 entities, 480 of which were large. We found that 95 per cent of the 1,600 were within the rules of claiming. Clearly there were some that were not, and we've already recovered $194 million, and we're pursuing another $89 million, with $6 million in dispute, and we've decided not to pursue $180 million because it went to small businesses who made a genuine attempt—maybe a mistake, but they had paid it on to their employees. That was a very fundamental requirement. They did pay it on to their employees.
2.11
Mr Jordan noted that in terms of the design of the program the key priority was:
… to ensure that what was developed was operable or implementable because one of the key features was to try to get the money out the door, firstly, as quickly as possible from the start of it, and secondly, as quickly as possible from their [public and private entities] application to get it.
2.12
Both Treasury and ATO noted in their evidence, that while both provided advice on possible clawback mechanisms to the Government, both agreed that the scheme’s primary importance was to, as Mr Hirschhorn summed it up for the committee:
… [T]o get the money out into the community, so businesses could continue to operate and not lay off their staff, but also to do it with integrity.
Views relating to Item 1 of the bill
2.13
Item 1 of the bill inserts various definitions for annual turnover, JobKeeper payment and JobKeeper scheme into section 6 of the Act.
2.14
ASA suggested that some definitional terms in the bill should be more precisely articulated to calculate an entity's repayment amount, in particular:
Company profit for ASX listed companies usually means taxable, underlying or statutory profit. Remuneration schemes have variable components some of which have the nature of a bonus. … We see the reference to entities to mean legal entities. Listed companies may incorporate a large number of legal entities.
Views relating to Item 2 of the bill
2.15
Item 2 of the bill, as outlined in Chapter 1 proposes inserting two new sections to section 19 of the Act; section 19A and section 19B.
Limited support for introducing repayment mechanism
2.16
While there has been a general acknowledgement in the ASX reports of receipt of government subsidies, there is limited support for entities returning JobKeeper payments in accordance with the repayment mechanism set out in the bill—that is to defer input tax credits for large entities that profiteered off JobKeeper payments until the earlier of ten years or the entity repays its JobKeeper payments.
2.17
The Australian Council of Trade Unions (ACTU) 'support[ed] requiring companies to repay JobKeeper they have profiteered from'. Mr Joseph Mitchell of the ACTU regarded the repayment mechanism as 'quite clever' and noted that it 'also giv[es] companies that do have the capacity to repay the opportunity to do so immediately'.
2.18
The committee received two submissions from entities that repaid JobKeeper payments and their reasons for doing so are set out below.
Box 2.1: Explanations of entities that returned JobKeeper payments
Domino's Pizza Enterprises Ltd (DPE):
As the uncertainty over [DPE's] operations and trading conditions had passed, and the Company had demonstrated its ability to continue to trade, DPE determined in October 2020 to return JobKeeper received in that Financial Year, $922,000, despite continued eligibility. Subsequently, DPE determined the Company would pay back $792,000 in JobKeeper assistance received in the prior financial year. These returns were completed in Financial Year 2021.
Toyota:
We believed it was appropriate to volunteer to return the monies to the Australian government, and minimise the cost imposition placed on the Australian taxpayer. As revenue and profitability outlook improved, Toyota wanted to do the right thing as well as avoid any unnecessary reputational risk. We sought advice from the Australian Tax Office on how to return monies and in January this year, Toyota in good faith voluntarily returned the $18,200,000 in support we received covering the period June to September 2020.
2.19
Professors Rabee Tourky and Rohan Pitchford were both of the view that 'where a business has profited from JobKeeper [the repayment mechanism] should be direct and involuntary'.
2.20
Likewise the Australasian Centre for Corporate Responsibility (ACCR) supported the bill’s intention of 'where relevant, return[ing JobKeeper payments]'.
Technical issues with proposed repayment mechanism
2.21
Concerns were raised regarding the proposed repayment mechanism's drafting and application, as discussed below.
2.22
Generally, views were in opposition to the retrospective nature of the repayment mechanism. Some alternative approaches to address the issue, that large entities were profiteering off JobKeeper payments, were also put forward.
2.23
Ownership Matters noted its concern about the exclusion of private entities from any form of recording of benefit:
… we note that there is no requirement for any private company to separately record whether it had paid “a bonus to an executive” in any period, which may present a significant practical impediment to the Bill's operability.
2.24
Professors Tourky and Pitchford noted '[w]hile the hold on claiming goods and Services tax (GST) input credits provides an incentive to businesses to make voluntary payments, there is no direct enforcement mechanism, and this indirect mechanism could potentially have unintended consequences'.
Retrospectivity
2.25
A number of submitters and witnesses expressed their opposition towards the repayment mechanism's retrospective application for the following reasons:
sovereign risk of the retrospective changes;
retrospective taxation nature; and
difficulty with long term decision making.
2.26
Ms Fiona Balzer of ASA added 'I think that shareholders do believe that Australia doesn't have a tendency to have retrospective changes to the law'.
2.27
As mentioned above, concerns were raised about the risks of retrospective disclosure regarding the ATO Commissioner’s ability to administer tax laws and the provision of data supplied in support of individuals' tax arrangements.
2.28
The Commissioner stated that if this information were to be made public it would compromise the ATO’s ability to administer these laws, having a potentially profound impact on compliance and how taxpayers interact with the tax system and ATO.
2.29
In responding to the order for production of documents and raising his own public interest immunity claims, the Tax Commissioner in his letter to the President of the Senate stated:
Requiring disclosure of protected taxpayer information to the Parliament will harm the public interest by undermining public confidence in the Commissioner’s ability to keep taxation information confidential and the administration of the tax system beyond the administration of the Coronavirus Economic response package more generally. That is, it has the clear capacity to discourage the open and full disclosure of information to the Commissioner which is necessary for the effective administration of the tax system.
Impact take-up of government programs
2.30
Domino's Pizza Enterprises also raised a potential unintended consequence of retrospectivity in the bill on the take-up of government programs:
DPE is concerned about the potential in relying on future government criteria that may retrospectively be changed, which may require a more conservative approach in relying on such criteria. This could have the unintended consequence of reduced take-up of government programs, which would have a negative effect on the community, particularly if the intention of those programs is to create fast, stimulatory impact for the benefit of the broader economy.
Application
2.31
Professors Tourky and Pitchford would have liked to see the bill applied 'to all businesses who profiteered from JobKeeper, regardless of their annual turnover':
While large corporations have greater public recognition, there is no reason in principle why taxpayer funds should be lining the pockets of any corporation that has profiteered from JobKeeper.
Support for the publication of large entities' JobKeeper information
2.32
All evidence supported the publication of large entities' JobKeeper information, for transparency and public scrutiny reasons as outlined below.
2.33
Mr Paatsch and Dr Steve Hamilton both agreed that they could not 'see any downside in doing it' and 'it's hard to argue against that', being the publication of JobKeeper information for large entities.
2.34
The ACTU stated in its submission that it would have preferred the publication of this information from the outset, and called for it publication 'immediately'.
This transparency register should be established immediately to ensure that the Government and the companies which received public monies are held accountable for its use
2.35
Furthermore, some suggestions were made on how to improve the publication of JobKeeper information. This included noting a brief comparison of Australia's and New Zealand's wage subsidy repayments, the latter having implemented a transparency register.
Transparency
2.36
A specific requirement of the bill under section 19B, attempts to address the need for transparency by showing which entities received payments and how well they had faired through the pandemic. A number of submissions and witnesses supported the publication of information on the basis that it would enable greater transparency.
2.37
DPE stated that the publication of large entities' JobKeeper information 'would align with community expectations regarding the appropriate use of public funds'.
2.38
Further, DPE noted the importance of the prudent use of public funds, and the opportunity for public commentary and debate regarding the use of those funds. DPE published the amount of government support it received, including JobKeeper, in our updates to the Australian Securities Exchange.
2.39
The ACTU reiterated the importance of the public having access to such information, to '… [create] a clear line of sight of the payments made and who they're made to'.
2.40
As a representative of shareholders, Ms Balzer stated:
… I think it's beholden on listed companies, particularly, to have clear disclosures and, in terms of complying with the ASIC [Australian Securities and Investments Commission] requirements, to then make that public.
…
… having nowhere to hide—by having transparent reckoning of what JobKeeper has been received by each company—would also be helpful.
2.41
The ACCR noted that this additional information would assist investors make more informed choices. The information would:
… guide [investors] engagement with companies on their use of government subsidies. It will assist investors in assessing whether companies have engaged in responsible stewardship of their human capital to secure long term performance of the company or whether they were focused on the short term benefit of shareholders and executives.
2.42
Mr Mitchell made a broader tangential statement on the importance of transparency for all government programs:
We think it's a really good idea to make sure that the government and the public have line of sight of who received the sums, how they received them and how they went. It's a really important way to make sure that any program is transparent. We expect that there's transparency associated with every other expense of government. The government is very proud of the program. We're proud of our participation in it. We should be happy with the scrutiny.
2.43
Further, Dr Hamilton was of the view that greater transparency would also increase compliance:
… there is actually pretty good evidence from academics overseas that more transparency in business tax affairs leads to more compliance, because the shareholders are aware of what the companies are doing and the companies feel compelled to do the right thing.
2.44
On a related note, the ACCR made the connection between transparency via publication of information on large entities' JobKeeper payments and repayment of JobKeeper payments:
We believe that further transparency, as proposed in this bill, will assist in the repayment of unneeded subsidies.
Annual turnover threshold $50 million
2.45
Ownership Matters recommended in its submission, and at the public hearing, lowering the annual turnover threshold for entities that are required to publish information on JobKeeper payments—based on the bill, and thereby including private entities—noting that the majority of entities fall outside the present reporting requirements.
2.46
Senator McKim asked Mr Paatsch whether the bill ought to be passed:
Senator McKIM: Do you think the parliament should pass this legislation?
Mr Paatsch: I would not be in favour of the retrospective taxation nature of it, no. But the bill ought to be passed. A public register, I think, is good public policy and I don't see that there is any downside in doing it, to be honest.
2.47
However, Dr Hamilton, whilst in favour of transparency, also noted that the annual turnover threshold should not be so low that it could violate the privacy of very small businesses.
2.48
Finally, Mr Paatsch considered that failure to the lower the threshold would make the publication of information 'less effective'.
Data collection, scope and publication
2.49
Ms Balzer indicated that the collection and publication of information as proposed in Section 19B, about each entity that has received JobKeeper payments may require additional assistance:
We just feel that in terms of what an entity receives they might need additional work to make this transparency beneficial for all, in terms of pulling together all the ABNs under an entity.
2.50
Professors Tourky and Pitchford told the committee that they would like to see more information published than is proposed in the bill.
There is an important need for firm-level data on JobKeeper recipients. Not only will this provide the public with transparency over of the JobKeeper scheme, it will also create research opportunities to identify the intricacies of how JobKeeper was used by businesses, and the effects of JobKeeper on workers. However, more data should be provided and published than is proposed. In particular, data regarding the composition of workforce, hours worked, worker entitlements, gender, and ethnic background of workers, and other demographics of workers should be included.
Repaying JobKeeper payments
2.51
As mentioned at the commencement of this chapter, the seven submissions received generally agreed with the bill’s overall intent, though many noted that there was a community expectation that firms which do well ought to consider repaying the Jobkeeper payments.
2.52
The committee notes the advice prepared by ASIC regarding the need to disclose to shareholders the amount of JobKeeper subsidy received by the listed entity, and ASA’s advice, in particular where it states that 'Companies should give close consideration to repaying Government-funded COVID-19 payments before rewarding executives or paying dividends.'
2.53
The committee also notes OM analysis that approximately 90 per cent of all of the JobKeeper pledged for return comes from public companies and not private entities. In addition, OM noted that:
OM is aware of four ASX companies outside the ASX 300 (Australian Clinical Labs, Peter Warren Automotive, Universal Store and Dusk Group) that have repaid $40.7 m[illion]. Additionally Toyota Motor Corporation Australia (a public company in Japan) has acknowledged that it has repaid $18 m[illion].
2.54
The ACTU stated that it supports the bill and its purpose to improve transparency of the JobKeeper program. In particular, it supports the recovery of public money which has been paid in the form of a wage subsidy to large corporate entities which remained highly profitable during the pandemic and which, in many cases, also paid executive bonuses to wealthy directors and executive officers.
2.55
Professors Tourky and Pitchford advocated that repayment mechanism for business that have profited from JobKeeper ought to be direct and involuntary:
… [T]hat the repayment mechanism where a business has profited from JobKeeper should be direct and involuntary. While the hold on claiming GST input credits provides an incentive to businesses to make voluntary repayments, there is no direct enforcement mechanism, and this indirect mechanism could potentially have unintended consequences. Further, the proposed bill should be applied uniformly to all businesses who profiteered from JobKeeper, regardless of their annual turnover. While large corporations have greater public recognition, there is no reason in principle why taxpayer funds should be lining the pockets of any corporation that has profiteered from JobKeeper.
2.56
The committee also received submissions from firms that had decided that it was appropriate to repay the subsidy. Both Dominos and Toyota told the committee that they 'wanted to do the right thing' as well as avoid any unnecessary reputational risk.
2.57
Treasury and the ATO were both asked whether they had considered and advised on the inclusion of a clawback mechanism for the repayment of the subsidy in the original design. ATO told the committee that while it assisted with operability of the program the policy advice regarding the design of the program was a matter for the Treasury:
The design of the program was a matter for our colleagues at Treasury. In terms of our input, yes, we worked with Treasury to ensure that what was developed was operable or implementable because one of the key features was to try to get the money out the door, firstly, as quickly as possible from the start of it, and secondly, as quickly as possible from their application to get it. So, yes, we discussed this in detail with our Treasury colleagues.
2.58
Mr Jordan did note however, that through the ATO’s compliance mechanism it had 'clawed back $470 million … and there's a little bit more to come' in regards to pursuing non-compliance in the program.
2.59
Mr Hirschhorn, when questioned by Senator McKim, on whether Treasury had asked ATO if a clawback mechanism would have been implementable replied:
The concept of a clawback mechanism was discussed but, given the policy decision not to have a clawback mechanism, the question falls away.
2.60
Ms Wilkinson explained the reason why a clawback mechanism wasn’t included in the program design stating:
This was a matter we put quite some thought into. When you're thinking about this question, you have to think carefully about the context of the situation when JobKeeper was introduced—just in terms of how unbelievably uncertain the environment was, both from the health and an economic perspectives. We had confidence which had dropped to record lows, both business and consumer confidence, and we had a very uncertain outlook for the unemployment rate. We were certainly concerned. We were also aware of the fact that the JobKeeper payment was going to have a very high take-up amongst small- and medium-sized businesses, and we were aware of the, shall I say, 'respect' which those businesses afford the ATO. They take their interactions with the ATO seriously and are very mindful of the powers that the ATO has.
So we were definitely concerned that if there had been a clawback mechanism then take-up would have been lower and businesses would have been more cautious about it. Remember: JobKeeper payments had to be passed through to employees, so it wasn't the case that a business could get JobKeeper payments and just have them sit on its balance sheet; they had to be passed through to the employees. So small businesses would have had to think about how, if down the track they didn't end up having the fall in turnover that they expected, they would find that money.
2.61
Further, Ms Wilkinson stated that:
I should also add that JobKeeper did two things: it wanted to halt the decline in employment, which was clearly happening in the weeks before it was announced, and we also wanted to support the recovery. We were concerned that if there were a clawback mechanism there would be a disincentive for businesses to come back as quickly as possible if things didn't turn out to be better than expected, and we were concerned that businesses would have less of an incentive to pivot their businesses towards new opportunities, for example. Both of those things were going to be really important for the recovery. So it was a judgement that we had to make; it was a careful, on balance and professional judgement at the time and in the circumstances.
2.63
Since the hearings, Treasury has released a report on its website, Insights from the first six months of JobKeeper, which outlines, among other analysis, its position on the likely effect of a claw back mechanism:
A mechanism to claw back payments from businesses that performed better than expected was not included, reflecting a desire to avoid any disincentives for businesses to adapt and recover. The introduction of such a mechanism would likely have reduced the overall level of activity and muted the recovery.
…
At the time of the JobKeeper review in June 2020, it was judged appropriate to maintain JobKeeper in its current form for a further three months, even though there was evidence some businesses that were initially heavily impacted were showing signs of recovery. This judgement reflected the still heightened uncertainty surrounding both the pandemic and the economic recovery, the weak economic conditions at the time, and the role that JobKeeper was playing as part of the broader macroeconomic response. Eligibility for JobKeeper moved from an assessment of anticipated decline to actual decline in turnover as the recovery strengthened.
International experience
2.64
The committee received some evidence that other countries have published information on domestic entities that received wage subsidies during the Covid pandemic.
2.65
The ACTU told the committee that both New Zealand and the United Kingdom considered the publishing of entities' wage subsidies as a 'sensible step'.
2.66
Mr Paatsch suggested that 'the existence of a completely open and transparent register of all wage subsidy recipients [in New Zealand] also played a role' in repaying wage subsidies and provided the following comparison:
Australia: $89.3 billion expended. Pledged for return Treasury numbers presented to the parliament: $225 million, or a quarter of one per cent. New Zealand: AUD$12.35 billion—that's assuming a very generous exchange rate—with $673 million actually physically returned, which is 5.45 per cent of the scheme.
2.67
The committee is unaware of any country with a wage subsidy scheme that has implemented a clawback mechanism on a retrospective basis and there is considerable variation in the design of the scheme across different countries.
2.68
Treasury noted in its recent JobKeeper report arrangements in other countries:
2.69
In other countries, governments introduced a range of schemes to promote job retention. Each scheme was designed and implemented differently to suit national circumstances and requirements. Some schemes used an actual turnover decline or actual evidence on the furloughing of employees, and others determined eligibility on an expected decline in turnover. Where expected turnover decline was a condition of eligibility, jurisdictions took different approaches, with some, such as New Zealand and the Netherlands, requiring businesses to repay part or all of the subsidy if the anticipated declines did not eventuate. Others, such as Ireland, advised that the subsidy would not be recouped if the projection was found to be reasonable.
Questions on Notice – Government agencies
2.70
The committee provided a written question on notice to the ATO and ASIC separately, requesting a list of proprietary companies that are required to submit general purpose financial statements (GPFS) including the name of the company, net income (profit), amount of JobKeeper payments received and any other information from GPFS that the ATO or ASIC could put into the spreadsheet. In response the ATO stated that it could not provide the information due to secrecy provisions in the Taxation Administration Act 1953. ASIC provided a list via the ATO that included the company name, date of most recent GPFS received and document reference number. ASIC informed the committee that providing the additional information requested, would be an unreasonable diversion of resources.
2.71
Further questions were put on notice during the committee’s 10 September hearing. The committee reporting date was extended by a fortnight to accommodate requests from both the ATO and Treasury for extensions to providing answers to the questions. While the ATO managed to provide answers to the questions by the new agreed deadline, Treasury failed to meet the deadline. Answers to the questions of notice were eventually submitted by the Treasury to enable them to be considered in this Report.
2.72
The committee would remind all officials that it not only has the power to ask for documents and specific information publicly, it is the duty of public officials to provide such information to a parliamentary committee when requested particularly when no public interest immunity claim has been accepted by the Senate.
2.73
The committee also reminds officials that it can receive and consider any information that officials deem sensitive in-confidence as has been done in many past inquiries.
Committee view
2.74
The committee notes that, thankfully, pandemics are few and far between. Reflecting on the evidence from the Treasury and ATO, the committee commends the government and the agencies' quick action to support businesses particularly small business owners who have borne the brunt of the pandemic lockdowns. The committee believes that JobKeeper was an unambiguously successful program that saved jobs and businesses across every sector of the economy.
2.75
The committee supports transparency of government processes to ensure accountability but remains concerned by the bill allowing for undefined ‘further information’ to be published as prescribed by the rules in the Act. Neither the bill nor the Explanatory Memorandum provide any examples of what may be considered or included as ‘further information’. As such, the committee is concerned about how this provision may impact entities, particularly small businesses.
2.76
The committee notes that there is significant opposition to the proposed section 19A inserting a repayment mechanism. The proposed repayment mechanism and its retrospective nature have raised some technical concerns with its implementation which also concerns the committee. Rather than prescribing punitive measures in a time of considerable angst, the committee supports entities who have successfully managed their businesses and who subsequently find they did not require the government assistance and chose to voluntarily repay the JobKeeper payments. The committee commends those who have done so already and supports those who are considering such a path. The committee believes it is up to business to make their own decisions based on their own circumstances within the law.
2.77
The committee notes that it expects officials, as per Standing Orders, to comply regarding the laws set down by the Parliament for the provision of information.
2.78
The committee recommends the bill not be passed.
Senator Slade Brockman
Chair
Liberal Senator for Western Australia