Maintaining JobKeeper beyond the health crisis would be a serious mistake

While it is important to note that JobKeeper was introduced in response to an external crisis, not in response to perceived market failure, this does not change its nature: we must avoid normalising government bailing out business.

Beyond this, at a basic level, wages are a major cost for business. For many businesses, especially in service industries, it represents by far their single largest expense. Some of these businesses can now transfer a large proportion of that cost to the government.

The fact that businesses were complaining about the need to front extra cash for JobKeeper top-up payments, even though they would be reimbursed later, makes clear where the subsidy actually falls. These top-ups are the main component of JobKeeper that is not a subsidy for business.

Supporters of JobKeeper may argue that in the absence of the payment workers would be let go, and hence businesses are not receiving a subsidy at all. Yet this is largely a furphy.

First, JobKeeper payments can only be made in respect of all employees or none, so even businesses that would downsize their workforce must be receiving at least part of the subsidy.

Second, this logic assumes that the main impediment to businesses maintaining their workforce is the physical restrictions of the lockdown – and that once it ends, workers will return en masse to their old jobs.

Yet it is far more likely that the economic downturn (in part caused by the lockdown) is primarily responsible for jobs disappearing. Those arguing JobKeeper must be extended or some recipients will lose their jobs are really just making it clear that, for many, there is no job to go back to.

In effect, these fictional jobs exist only for the purpose of the JobKeeper payment. Functionally, these people are being paid an extra $400 a fortnight (over JobSeeker) to pretend they are employed and not look for a new job.

However, JobKeeper is not only propping up non-viable jobs. Like all business subsidies, it is life support for sick businesses.

Some of these businesses would have failed in normal circumstances, much less these challenging times. Many more will not survive the coming economic headwinds, even when the major restrictions are lifted.

JobKeeper simply cannot prevent, in whole or in large part, the economic reckoning of a global pandemic.

Calls to extend JobKeeper – or worse still, convert JobKeeper into some kind of permanent employment subsidy – weaken the price signals that make the economy efficient.

While it is important to note that JobKeeper was introduced in response to an extraordinary external crisis, not in response to perceived market failure, this does not change its nature: we must avoid normalising government bailing out business.

Policies that allow the business sector to transfer losses to taxpayers are open to exploitation both by government and business. Inevitably, it leads to government picking winners.

If there is any argument in favour of these policies, it is that they would allow us to confront the public health crisis first, and then the economic crisis second. We have spent hundreds of billions of dollars to buy us time.

However, once the public health challenge is in hand, delaying the inevitable correction will not make it any easier to deal with.

It will likely take years until the economic effects of the pandemic dissipate, and as is always the case with economic downturns, the economy that emerges on the other side will be different to the one that was here before.

As painful as it will be, some businesses will fail. We should focus our rescue efforts on helping their workers find new jobs.