JobKeeper scheme backfires, creates ‘zombie’ businesses

Payments have only just started flowing – but the scheme may have backfired in a major way by creating businesses doomed to fail.

The government’s JobKeeper scheme has been touted as a crucial lifeline helping workers and businesses stay afloat during the coronavirus crisis.

But a leading Australian economist claims it may have the unintended consequence of creating “zombie firms”.

In a nutshell, it is feared the subsidy is artificially propping up some unviable businesses that will ultimately fail once the cash is withdrawn, sending employees onto government benefits.

In today’s Deloitte Access Economics Budget monitor, entitled “The virus sprint and the recovery marathon”, the firm claims zombie companies created by JobKeeper were problematic for the wider economy – although withdrawing support altogether was not the solution.

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“One pandemic is enough for a lifetime and there is a risk that JobKeeper, as a measure designed to preserve jobs, could eventually create ‘zombie firms’ that neither fully recover, but don’t go bankrupt. This would slow the broader recovery. But so too would a sudden stop to all support,’’ the report states.

It’s a sentiment echoed by Queensland University of Technology retail expert Dr Gary Mortimer, who said zombie firms were likely a particular problem within the retail sector, which was already struggling well before the pandemic.

“At the beginning of this year we were talking about a number of major retail brands that had moved into voluntary administration, and at that point I was critical of some for being lazy retailers – retailers that were too quick to rely on promotional incentives and discounting rather than looking at ways to improve the customer experience or clearly articulate their competitive points of difference,” he said.

“As COVID-19 restrictions have impacted the retail sector with many retailers voluntarily closing their stores, it’s certainly reasonable to consider that some retailers were potentially already on their last legs anyhow.

“This period of closure and the added financial support through the JobKeeper allowance may obscure the true financial viability of some retail businesses – they may remain currently in business underpinned by this government financial support, however, as we return to a period of normal retail trade in the coming weeks and months, I suspect at that stage we may see a number of retail brands fall by the wayside.”

Meanwhile, it has emerged that Prime Minister Scott Morrison is considering cutting the $1500 JobKeeper payment or phasing it out faster than expected.

JobKeeper was due to last until September 27 in its current form, but while payments have only just begun to flow, the government is reportedly looking into several options such as reducing the rate, targeting it at smaller businesses, or limiting it to sectors that have been the worst affected by the crisis.

Our success in flattening the curve is the reason behind the potential rethink of the JobKeeper system, but Mr Morrison remained tight-lipped on the matter during a press conference this afternoon.

“The virus is still out there – it hasn’t gone anywhere … There may be 700 or so active cases in Australia now, but Australia is still very much at risk,” Mr Morrison said today.

Prime Minister Scott Morrison remained tight-lipped over potential JobKeeper changes today. Picture: Lukas Coch/AAP

“The reason we’re reopening is we put protections in place and it will take us some time to reopen our economy and get it back to a point where it can start supporting Australians again … We have put in place and bought six months’ worth of time.

“We’re only six weeks into that six months. We have put the commitment in to support Australians over that period of time. As we need to adjust, based on advice and the strength of the economy and how many people we are getting back to jobs – these are the things we will watch carefully.”

He said speculation over JobKeeper changes was “premature”.

“We are six weeks in to a six-month program. The impact of the virus, how it will impact on Australia in the months ahead, with a reopening economy, is very much a work in progress,” he said.

“That’s why we put this six-month lifeline in place. What we need to ensure that we do is that whatever supports we have they are targeted.

“We have to have programs that use existing distribution mechanisms, within the Government. We have been doing all of these things. All of our programs will continue to be delivered in accordance with those principles …”