KPMG responds to JobKeeper 2.0 and the RBA economic forecast
Dr Brendan Rynne, KPMG Chief Economist, responds to RBA economic forecast
Following detailed analysis of the Victoria stage 4 lockdown, KPMG has reviewed its central case scenario for the outlook of the Australian economy over the remainder of this year and into the next. The worsening of the coronavirus pandemic in Victoria has clearly resulted in a reversal of the early positive momentum that was gaining nationally after the completion of the Stage 1 lockdown.
Our latest modelling suggests the economy will continue to decline into the September quarter 2020, albeit a much shallower rate of decline than we experienced in the June quarter. This analysis shows the national economy is now likely to take to the end of 2021 to recover back to the levels of economic activity we experienced at the end of 2019. Unemployment is expected to peak in the December quarter 2020, and decline at a more gradual rate than previously assumed.
Following the initial small bounce back in employment in May and June from the peak job losses in April, we have since seen jobs recovery stalling, and now with the introduction of the Stage 4 lockdowns in Victoria, most of the employment gains in the last few months are likely to evaporate, and in fact worsen as more sectors and industries get caught up in a forced reduction to economic activity.
Our GDP forecasts for the next 18 months remain slightly more optimistic than the RBA’s revised forecasts, both in negative growth this year and positive the next.
Grant Wardell-Johnson, Lead Tax Partner, KPMG Economics & Tax Centre, comments on JobKeeper changes
This morning the Federal Treasurer announced changes to the proposed extension of the JobKeeper program which will operate from 28 September 2020 (JobKeeper 2.0). These changes apply nationwide and recognise that many employers experienced some improvement in trading conditions towards the end of the June quarter, but will again experience a significant decline in the September quarter. Such businesses may not have been eligible for the JobKeeper extension under the proposals announced on 21 July.
An immediate action point for employers currently receiving JobKeeper is to review whether they can prospectively receive JobKeeper for additional workers, given that today’s announcement allows workers who were first employed between 2 March 2020 and 1 July 2020 to be eligible from the current fortnight ending 16 August.
One point to note is that employers will not know for certain that they have met the decline in turnover test until after the commencement of the period for which they would like to claim the subsidy. This may impact workforce planning and be a barrier to the community receiving maximum benefit from the program. The profession has drawn the attention of Treasury to this issue.
The key changes to the JobKeeper extension proposals are:
- To qualify for JobKeeper 2.0 for the first extension period (from 28 September 2020 to 3 January 2021), employers will only have to show that the requisite decline in turnover occurred in the September quarter, compared with the same quarter in 2019. The June 2020 quarter is no longer a relevant test period for JobKeeper 2.0.
- To qualify for JobKeeper for the second extension period (from 4 January 2021 to 28 March 2021) employers will only have to show the requisite decline in turnover for the December 2020 quarter, compared with the same quarter in 2019. The original announcement on 21 July had indicated that an employer would need to show the necessary decline in turnover for each of the three quarters ending June, September and December 2020.
- For JobKeeper fortnights commencing from 3 August (i.e. including the remainder of the original JobKeeper timeframe) workers employed as of July 1, 2020, will be eligible for JobKeeper. This means that workers who commenced with their employer between 2 March and 1 July will be eligible during the remaining four fortnights of the original JobKeeper period, and also during the extension periods.
- Today’s announcement clarifies that an employer does not need to have been eligible for the original JobKeeper program in order to qualify for one or both of the extension periods. So an employer that first satisfied the decline in turnover test for the September quarter would be eligible for the first extension period under JobKeeper 2.0 even though it had not previously been eligible.
The federal government has reacted to the evolving health situation and this announcement paves the way for a significant number of additional employers to be able to benefit from the extension to the JobKeeper program. According to Treasury, these changes are expected to increase the cost of the JobKeeper program by a further $15.6 billion. It will be necessary for the Treasurer to issue a new legislative instrument in order for the extension to the JobKeeper program to take effect. We do not expect that this will occur until towards the end of August.