A wage rebate to protect our economy

COVID19 & the Economy

Mark Frost - Chief Economist, Business NSW 

27 March, 2020

A wage rebate will be critical to Australia’s ability to bounce back quickly from the COVID-19 epidemic.

Countries around the world such as the UK and New Zealand have brought in wage subsidy schemes to deliver payments to employees that have had to be stood down. In the UK employers receive an 80 per cent rebate while in New Zealand the rebate is $585.80 per week for full time employees. 

These policies:

  • give employees and employers the confidence they can reconnect when conditions improve
  • support employee wellbeing and business planning
  • reduce the reliance on social security payment providers, like Centrelink
  • support employers who have been the hardest hit by the crisis.

What's the alternative?

Employers have had to make tough decisions about their workforce, with many of their former employees now joining Centrelink queues.

The Australian Government’s wage subsidy on PAYG withholdings supports employers fighting hard to keep their workers employed. But this subsidy provides little or no support for employers who cannot continue to pay their staff.

A wage rebate would enable these employers to continue to pay wages to employees they have had to stand down.

Government has suggested a wage rebate scheme would be difficult to implement and slow to build. But there are efficiencies to gain in leveraging the existing payroll systems used by many employers to make claims on behalf of its employees.

Rather than Centrelink having to deal with hundreds of thousands of people all within a short period of time, it could deal with a smaller cohort of employers that could handle claims on behalf of its employees.

While there are many issues to consider, none of them post intractable problems with other countries demonstrating it can be done.

The shape of recovery

A wage rebate will better prepare Australia to return to more normal economic conditions once businesses reopen. Helping businesses to maintain organisational capital is critical to have business ready once the crisis lifts.  Losing the employee-employer relationship stifles this process.

In previous recessions it has taken the economy more than a decade to recover. By the end of 1989 the unemployment rate was 5.8 per cent. Following the 1991 recession where unemployment peaked at 11.2 per cent, it was not until August 2003 that it returned to that level.

We need all the tools in our arsenal to hasten as fast a return to normal as possible. 

 

For any questions about this article or to raise concerns about the current business environment, please contact Mark Frost via email policy@businessnsw.com