Budget Review 2020–21 Index
The centrepiece of the Government’s measures intended to
increase employment growth in the
post-COVID-19 environment is the JobMaker Hiring Credit—a wage subsidy program for
people up to 35 years of age, expected to cost $4.0 billion over
three years from 2020–21 (Budget Measures:
Budget Paper No. 2: 2020–21, p. 162).
The JobMaker Hiring Credit
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. The credits,
which are claimed quarterly in arrears by the employer, are paid for a period
of up to 12 months. 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. Job
seekers are able to be employed on a permanent, casual or fixed-term basis.
wage subsidy programs, which are administered by the Department of
Education, Skills and Employment and jobactive employment services
providers, and which are largely paid out of the Employment Fund, the JobMaker
Hiring Credit is to be delivered by the Australian Taxation Office (ATO). There
are two main likely reasons for this. The first is that the program is targeted
more broadly than existing wage subsidies in that it is not restricted to job
seekers using jobactive services. The second is that the program will
rely heavily on ATO payroll data to ensure that positions attracting a subsidy
Rationale for the program and its focus
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’. The Government hopes to encourage the creation of
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.
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. Young people have experienced the biggest increase in
their unemployment rate, with the sectors in which they work having been among
those hardest hit by the COVID-19-related economic downturn. For a sectoral
analysis of the economic effects of COVID-19, see the relevant Budget Review
Some commentators have criticised the program’s focus on
young people. For example, Professor Gary Martin of the Australian Institute of
Management has argued that the
youth-specific subsidy will disadvantage older workers, and that the
criteria based on age should be extended ‘to include eligibility based on the
length of time the individual has been unemployed’. ACT Council of Social
Service chief executive Emma Campbell has
similarly called for the subsidy to be extended to people of all ages who have
been unemployed for a year or longer. However, labour market economist
Jeff Borland is reported as having suggested that the program is right to
target young job seekers, given that they have been hardest hit by the
COVID-19-related economic downturn and are likely to be the worst affected if
the current recession drags on and becomes more broad-based.
General issues associated with wage subsidies and how to
Perhaps the main issue associated with wage subsidy programs
like the JobMaker Hiring Credit 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 other job seekers who are not eligible for a subsidy. In relation to
the JobMaker Hiring Credit program, some have expressed concerns
that the program could be ‘rorted’, with businesses replacing older workers
with young job seekers to take advantage of the subsidy. The abovementioned
additionality criteria are intended to deal with this potential problem.
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.
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. Jeff
Borland has argued that, 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
- be structured to safeguard against potential employer
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
Likelihood of program success
The key issue determining whether or not the JobMaker Hiring
Credit is likely to prove successful in increasing employment relates to the
state of the macroeconomic environment and if businesses are in a position to, or
are willing to, hire young job seekers. The other crucial issue has to do with the
trade-off between ensuring that additional jobs are being created and
maximising take-up of the subsidy. Should take-up prove to be a problem, or macroeconomic
conditions change, then it may be necessary to adjust the program accordingly.
Such changes could include things like changing the size or conditions of the
Judging by the slow
take-up of the Youth Jobs PaTH program (p. 16), under which young job
seekers are offered internship placements, and host businesses given up-front
payments and a wage subsidy, the JobMaker Hiring Credit could struggle to meet
its anticipated target of 450,000 positions. In light of this slow take-up,
the Government has made the Youth Jobs PaTH program demand driven as a part of the
Budget, replacing the previous capped funding arrangements.
Another potential issue with the program that is likely to affect
take-up is if the qualifying criteria for job seekers prove too restrictive.
The program could exclude highly disadvantaged young people who have been in
insecure work and not accumulated the requisite minimum 20 hours per week,
averaged over a quarter, or who have not been in receipt of income support.
Other employment services measures
The Budget also provides relatively small amounts of funding
for various other employment services initiatives (Budget Paper No.
2, pp. 74–78, 230–231). For the most part, the funding
expands access to, and support provided by, existing programs and employment
services. The Government anticipates making significant savings over the
forward estimates period (around $1.4 billion) largely through the earlier
than originally anticipated nation-wide rollout of online employment services
for job-ready job seekers.
The Government introduced a Bill
to establish the JobMaker Hiring Credit into the Parliament on
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