Accounting errors led to $60 billion overvaluation of JobKeeper

Accounting errors led to $60 billion overvaluation of JobKeeper

The Treasury and Australian Tax Office (ATO) have drastically reduced their projected number of JobKeeper recipients by three million after it was revealed figures were inflated by mistakes on around 1,000 enrolment forms.

While these forms only represent 0.1 per cent of 910,055 submissions from businesses, they had a significant impact on the initial estimate that the program would cover around 6.5 million people. 

Now that figure has been reduced to 3.5 million, just slightly above the 2.9 million employees working for 759,654 businesses with $8.7 billion in approved payments to date. 

"The most common error was that instead of reporting the number of employees they expected to be eligible, they reported the amount of assistance they expected to receive," the two agencies said in a joint statement today.

"For example, over 500 businesses with '1' eligible employee reported a figure of '1,500' (which is the amount of JobKeeper payment they would expect to receive for each fortnight for that employee)."

The miscalculated projections had previously indicated around one in four Australians would be on JobKeeper, but that figure is now more like one in eight. 

The Treasury has revised the estimated cost of the JobKeeper program program to $70 billion, whereas it would have been worth around $130 billion before.

Neither the ATO nor the Treasury gave any indication the unexpected $60 billion saving would translate to a longer period for JobKeeper, however hypothetically it would equate to an approximate 22-week extension for 3.5 million people.

"This reporting error has come to light as the ATO and Treasury have been analysing the amounts being paid out under the scheme, reconciling these with the estimates provided by enrolled businesses of the likely number of eligible employees," the agencies said.

"It was not picked up by the ATO earlier as their primary focus in the first fortnight of JobKeeper payments was on ensuring that JobKeeper payments were paid promptly to those eligible for them, and not paid to those who were ineligible.

"These initial estimates from businesses of employees covered are not linked to payments, and so were not as carefully analysed."

The Treasury and ATO emphasise the reporting error has no consequences for JobKeeper payments that have already been made to eligible businesses.

The reason the impact is inconsequential for individual businesses is that payments are based on declarations made in relation to each and every employee.

"This declaration does not involve estimates and requires an employer to provide the tax file number for each eligible employee.

"By contrast, the only use of the information collected in respect of the reporting error was to provide an early estimate of the number of expected employees likely to access the JobKeeper program."

The agencies estimate around 150,000 enrolled businesses are yet to complete their employee declaration, which is required before payments can be made.

"Employers can still apply up to 31 May for payments made in April. Moreover the program will remain open to businesses that meet the eligibility criteria at any time over the 6 months it is in operation.

"JobKeeper is a demand driven program which was designed to support eligible employees in businesses that have experienced a significant fall in their turnover."

The agencies explain the original estimate was developed at a time when COVID-19 cases were growing significantly in Australia and restrictions were being tightened across Australia and much of the world.

"The difference between Treasury's estimates at the time and the number of employees now accessing the JobKeeper program partly reflects the level and impact of health restrictions not having been as severe as expected and their imposition not having been maintained for as long as expected at the time," the ATO and Treasury said.

"This has been reflected in some improvement to the outlook for the economy since the original estimate was developed as a consequence of these and other factors.

"The variation in estimates also reflects the inherent uncertainty associated with estimating the take-up of a demand driven program in the current circumstances."

What the reporting error doesn't change is the state of the labour market or the Treasury's projections for it. One in three Australians has either lost their job or had their working hours reduced since the pandemic began, 489,800 people have left the labour force, and unemployment rose by one percentage point to 6.2 per cent from March to April.

"It remains the case that in the absence of the JobKeeper program, Treasury expects the unemployment rate would have been around 5 percentage points higher," the agencies said.

"Treasury continues to expect the unemployment rate to reach around 10%, although as indicated by last week's Labour Force survey, the measured level of the unemployment is highly uncertain given the impact of social distancing restrictions on the participation rate."

The ATO has reminded employers they must declare their eligible employees monthly on an ongoing basis in order to receive JobKeeper payments, with May declarations having to be made by the 14 June.

The Treasurer also highlighted today that ratings agency Fitch has reaffirmed Australia's AAA credit rating, representing an expression of confidence in the Morrison Government's handling of the coronavirus crisis, as well as its demonstrated record of economic management and "commitment to fiscal prudence".

"Today's report confirms Australia as one of only 10 countries with a AAA credit rating from all three major ratings agencies," Treasurer Frydenberg said.

"In its report, Fitch notes that Australia's "effective macroeconomic policy framework, has supported a long record of stable economic growth prior to the current exogenous shock" and that "substantial fiscal and monetary policy stimulus" has been put in place "which should soften the shock and support the economic recovery"," he said.

"Fitch's action today, in reaffirming our AAA rating, is a reminder of the importance of maintaining our commitment to medium term fiscal sustainability."

Updated at 3:25pm AEST on 22 May 2020.

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