JobKeeper could halve unemployment increase but its cost will put future income tax cuts in danger

The new wage subsidy could limit the jobless rate rise to less than five per cent instead of 10. But future income tax cuts are under threat.

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The $1500-a-fortnight JobKeeper wage subsidy has eliminated the risk of Australia’s unemployment rate tripling to 15 per cent, economists say.

But it might spell the end of the next wave of personal income tax cuts.

More than 276,000 employers had signed up to the $130 billion plan by 4pm Tuesday – just 24 hours after it was revealed.

These included high-profile retailers that had closed down most of their stores, such as Flight Centre and Just Jeans.

The government believes many of the 280,000 workers who applied for JobSeeker unemployment support last week alone will move to the higher JobKeeper payment and out of the dole queue.

Lines of unemployed people outside Surry Hills Centrelink last week as the COVID-19 pandemic causes massive job losses. Picture: Sam Ruttyn

It also anticipates many more who were going to be furloughed now won’t be, as companies instead choose to hold on to staff.

AMP chief economist Shane Oliver said the expected rise in the jobless rate could halve.

“I think JobKeeper increases the prospects of keeping unemployment under 10 per cent when it might have been heading to 15 per cent,” Dr Oliver said.

Repaying its cost may force the government revisit the income tax cuts due to take effect in July 2022, he added.

NAB chief economist Alan Oster also said the prospect of getting to 15 per cent appeared to have been removed.

But it could still reach 12 per cent, compared to 5.1 per cent now.

“I think it’s a great idea and it will minimise the damage, but I still think the damage will be pretty severe,” Mr Oster said.

Department store Myer will close its doors nationwide for an initial 4 week period due to the effect of the COVID-19 virus, standing down 10,000 staff. Picture: Toby Zerna

“It does get rid of the risk that unemployment could have possibly got to 15 per cent.”

However, he expressed concern that struggling businesses were expected to pay the money to staff for a month before they could get a refund from the government.

Labor is understood to share that worry.

Flight Centre, which has stood down 6000 workers, will register for JobKeeper, a spokesman said.

“Our first impressions are that it is a very good program that should benefit those who have been stood down and also help companies preserve more roles for the future,” he said.

Premier Investments, which has laid off 9000, also said it would sign on.

Qantas has grounded flights and stood down thousands of staff as a result of the pandemic. Photo: Jenny Evans/Getty Images

Business Council of Australia CEO Jennifer Westacott said the package would “inject hope”.

“This is a country-changing moment,” Ms Westacott told Nine’s Today.

Hope is in short supply, with Roy Morgan’s consumer confidence index recording its poorest result since it began in 1973.

Opposition Leader Anthony Albanese said Labor would support the passage of JobKeeper legislation through parliament.

“This is very positive,” Mr Albanese told ABC Radio.

Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital. Picture: Jane Dempster/The Australian.

The Greens said workers who hadn’t been with their employer for 12 months should have been covered too.

Meanwhile, Treasurer Josh Frydenberg clarified how the scheme would operate.

“Employers should register their interest via the ATO website,” Mr Frydenberg said.

“Once the JobKeeper payment is operational the ATO will then make a flat payment of $1500 per employee per fortnight to each approved and eligible business.”

“This wage subsidy will then make its way into the pay packets of workers.”