CORMANN, Senator the Hon. Mathias, Minister for Finance, Commonwealth Parliament

FISH, Ms Kirsten, Acting Second Commissioner, Law Design and Practice, Australian Taxation Office

HIRSCHHORN, Mr Jeremy, Second Commissioner, Client Engagement Group, Australian Taxation Office

JORDAN, Mr Chris, AO, Commissioner of Taxation, Australian Taxation Office

KENNEDY, Dr Steven, Secretary, Department of the Treasury

QUINN, Ms Meghan, Deputy Secretary, Markets Group, Department of the Treasury

WILKINSON, Ms Jennifer, Deputy Secretary, Fiscal Group, Department of the Treasury

Evidence from Ms Fish was taken via teleconference—

Committee met at 12:01

CHAIR ( Senator Gallagher ): I declare open this hearing of the Senate Select Committee on COVID-19 as set out in the circulated program. Today the committee will hear evidence from Senator the Hon. Mathias Cormann, Minister for Finance, representing the Treasurer; the Australian Taxation Office; and the Treasury. I particularly thank Senator Cormann for making himself available to attend today's hearing. The hearing today will focus on the errors in the JobKeeper numbers but may cover other matters under the terms of reference. Information on procedural rules governing public hearings and claims of public interest immunity has been provided to departments and agencies. However, I would like to remind witnesses that a statement that information is not published, is confidential or consists of advice to or internal deliberations of government, in the absence of a specification of the harm to the public interest that could result from the disclosure of the information, is not a statement that meets the requirements of the Senate.

Before handing over to witnesses for opening statements, I note that this hearing has been called following the government's admission that the $130 billion JobKeeper program, which passed the parliament in April and was designed to support six million workers, was actually a $70 billion program which would support 3½ million workers. This admission, delivered late on a Friday afternoon on 22 May, significantly revised back the centrepiece of the economic response and has led to this hearing today. The committee considered the $60 billion JobKeeper revision and resolved to write to the Treasurer, the Hon. Josh Frydenberg MP, as the minister responsible for the program, to appear and give evidence today. Whilst it is not common practice for the Senate to invite a member of the House of Representatives, it is not without precedent. Unfortunately, the Treasurer declined the committee's invitation to appear. Senator Cormann, the committee expects that, in representing the Treasurer today, you will be able to answer all questions posed by members of the committee. We know that the Treasurer and his office will be following today's proceedings, and, if questions cannot be answered at the table, we do expect that information allowing these questions to be answered during the hearing will be provided to the committee.

I understand there are a couple of opening statements. Can I get agreement from the committee to publish those opening statements, which were circulated by email, and also publish some answers to questions on notice that have been returned from the Treasury as well? Thank you.

Senator Cormann: I will start with an opening statement as well if I may.

CHAIR: Okay. Do you have that electronically, Minister?

Senator Cormann: I've got handwritten notes, but it's very brief.

CHAIR: Okay. No worries. We'll start with you, Minister.

Senator Cormann: Thank you very much, Chair. I'm pleased to be assisting this very important inquiry into the government's response to the coronavirus crisis. The $60 billion estimates variation in relation to the JobKeeper program is not an accounting error as it has been falsely described by some; it is an estimates variation in the context of substantially changed economic parameters. When the JobKeeper program was first costed, we were in a rapidly evolving situation. In the weeks leading up to the announcement of the JobKeeper program, we were experiencing a daily growth in infection rates on some days of more than 20 per cent—in fact, in excess of 30 per cent on a number of days. There was a lot of uncertainty about the depth, breadth and length of the health crisis, and consequently a lot of uncertainty about the depth, breadth and length of the economic impact of the coronavirus pandemic in Australia. We were expecting the worst and we were prudently planning for the worst, which is why the costing of the JobKeeper program at that point in time, prudently, was based on a worst-case scenario.

Just two months later, when the program was recosted after the analysis of relevant ATO data, the health and economic context and the outlook were significantly better than feared back in March. Consequently, the economic parameters changed in the context of a substantially improved health circumstance and a substantially improved health outlook, which is the reason why the costings changed. It is a usual estimates variation in relation to a demand-driven program. The size of the variation is a function of the high degree of uncertainty at the time of the initial costing and the potential size of the program in a worst-case scenario. Importantly, given the prudent and very conservative initial estimate, the revised cost estimate was much lower, not higher, than previously anticipated, which is a very good thing.

Finally, in the context of the financing requirements of the Commonwealth through the Australian Office of Financial Management, it was very important that we erred on the side of prudence when making the initial costings based on the worst-case scenario rather than to put ourselves in a position where, potentially, in the context of a deteriorating situation, which was entirely plausible at the end of March, we might have been forced to make an estimates variation in the other direction, which would not have been good for confidence—of course, consumer confidence in particular has now been recovering for a number of weeks. That concludes my opening statement.

CHAIR: Thank you very much, Minister. I will go to Dr Kennedy and then Mr Jordan.

Dr Kennedy : Thank you for the opportunity to make a brief opening statement. Globally, there have been over seven million cases of COVID-19 and more than 400,000 deaths. The virus continues to spread in many countries, delivering devastating health and economic outcomes. Australia has had remarkably good health outcomes compared to many other countries. As the Chief Medical Officer noted to this committee, if Australia had experienced the same spread and fatality rates experienced in the UK, for example, then, instead of the 102 fatalities we have sadly seen, we might have seen significantly more fatalities. Given the improved health outlook for Australia, the impact of COVID-19 on the economy will be smaller. However, this will still be the single biggest economic shock Australia has faced in living memory.

The JobKeeper program was designed and delivered to respond flexibly to the wide variety of health and economic scenarios that Australia faces as a result of COVID-19. JobKeeper will be the largest fiscal stimulus program in Australia's history. From the information we have to date, the program has been effective in mitigating job losses and has kept millions of Australians attached to their employer in very difficult circumstances. At the time the policy design and costing analysis for the JobKeeper program was being undertaken, the impacts of COVID-19 on the Australian population and economic activity were highly uncertain. When the program was announced on 30 March the virus was spreading rapidly both internationally and domestically, and health modelling based on Australian-specific observed transmission rates was not yet available. The full extent of measures needed to contain the spread of the virus domestically was not clear.

In this uncertain context, it was prudent to design the policy to be robust to whatever circumstances unfolded, to be demand-driven, but to cost the JobKeeper policy under the assumption that very significant constraint measures more akin to a lockdown would be required. This economic scenario suggested GDP could fall by as much as 25 per cent in the June quarter. It is now clear that the fall in GDP for Australia is likely to be much less than this worst-case scenario. It is a good outcome that employment is lower and fewer businesses than originally expected are relying on government support to pay their employees.

JobKeeper was initially costed at $130 billion, and we now expect it to cost around $70 billion. As the Secretary of the Treasury, I take full responsibility for the revised costing of the JobKeeper program and all matters associated with the advice Treasury has provided. The remainder of the statement that I have tabled for the committee sets out the context for Treasury's analysis at the time the JobKeeper policy was being developed and the subsequent events as they unfolded.

CHAIR: Thank you, Dr Kennedy. Mr Jordan, would you like to make your opening statement?

Mr Jordan : Yes. Thank you for inviting us here today for the opportunity to further discuss our role in delivering the government's economic stimulus measures—in particular, JobKeeper.

As you know, on 22 May, in a joint press release with Treasury, we highlighted a reduction in the estimated cost and estimated number of employees needing the support of JobKeeper payments. To deliver JobKeeper, we developed a two-stage process whereby employers first enrolled in the program; this stage was meant to start employers thinking about whether they had suffered a 30 per cent reduction in turnover, and to allow us to check that they were real businesses and get an idea of how many employees may be requiring payment. The second stage was for employers to complete their application by nominating the names and tax file numbers of all their eligible employees and then making a formal declaration on that information.

Unfortunately, during the first stage, a small number of the 900,000 employers, in response to the question on how many eligible employees they had, made a range of errors such as incorrectly inserting telephone numbers, Australian business numbers and bank account details as well as '1,500' or multiples of 1,500. The largest of these errors—around bank accounts, phone numbers, ABNs et cetera—were rejected by the analytics sitting behind that field, but those smaller errors—such as '1,500', '3,000' et cetera—remained. This mistake was made by a small number of employers—around 0.1 per cent—who appeared to have thought they were being asked for the amount payable to, rather than the number of, employees. We did not build rigorous analytics behind that field that asked for the estimated number of employees a business had, instead focusing our integrity measures on questions that related more directly to payments.

In the first few weeks, the number of employees reported seemed to be on a trajectory consistent with the Treasury estimates. But, once employers began to confirm the actual employees covered as part of stage 2, we identified within a fortnight that the numbers were less than expected. This appeared, to us, to be because many large employers had not lodged their stage 2 applications. This understanding was reinforced when we conducted outreach with some of the large employers, who confirmed they hadn't yet finalised their stage 2 applications.

However, by 20 May, when numbers continued to stay below estimates, we did a deep dive into the 900,000 applicants on a line-by-line basis. It became evident that a number of mistakes were made in the stage 1 field that asked for the number of employees. This analysis was within three weeks of employers confirming actual employee applications and payments commencing. We advised Treasury and the minister's office on Thursday 21 May and then communicated it to the public through the joint press release with Treasury on Friday 22 May. Throughout, we regularly reported the latest information through to Treasury and the Treasurer's office.

If I could just reiterate: no overpayments or underpayments occurred as a result of this issue. It only temporarily obscured the actual size of a demand driven program. Payments are continuing to flow smoothly, and in the first three weeks over $9 billion was delivered, with 97 per cent of applications paid within three days. Frankly, this was no small achievement, and staff worked tirelessly over nights and weekends to make it happen. In less than two months, we built brand-new systems, provided detailed and accurate guidance, and applied integrity measures to safeguard and protect against fraud. Delivering such an unprecedented measure, along with others entrusted to us by government, was never going to be without its challenges. But that is exactly why we have procedures, integrity measures, and checks and balances in place to ensure that we mitigate the impact of any issues and are able to continue to deliver support to those Australians who need it.

We know how hard 2020 has been for so many Australians and how vitally important these measures are to those Australians who need them. It is a great privilege and a great responsibility to be in a position to provide support, and we have done everything in our power to deliver that support both swiftly and securely. As of midnight on Thursday 4 June, the ATO had delivered nearly $13 billion in JobKeeper payments to over 872,000 businesses. These now cover about 3.3 million employees, and we expect all these numbers to continue to grow over coming weeks and months. These figures highlight that the implementation of JobKeeper payments has been an enormous, fast-moving and ultimately effective undertaking to support businesses and employees during this difficult time. At the same time, our latest figures indicate we have applied $13.38 billion in cash flow boost credits to 708,000 businesses, and we have been a central point for two million applications for early release of super totalling $1.9 billion from super funds.

Thank you for the opportunity to provide that opening statement. We are, of course, happy to answer questions.

CHAIR: Thank you very much, Mr Jordan. Minister, in your opening statement you referred to the $60 billion revision as a usual estimates variation. When I refer back to the media release that was issued by the tax office with the Treasury on 22 May, the information the public was given was that you had been advised of a reporting error.

Senator Cormann: The reporting error triggered the recosting. Normally what happens—there is not a continuous recosting of policy measures. You cost policy measures at the time of the budget or the half-yearly budget update. In the lead-up to every subsequent budget update, whether it's in relation to pensions or child care or tax generally, there is an assessment done, given what is happening in terms of the economic parameters, of what the revised estimates are over the forward estimates period—and, indeed, what the revised projections are—over the medium term. In the ordinary course of events, if it hadn't been for the detection of the reporting error through the ATO, it is likely that there wouldn't have been a reassessment of the cost estimates.

The point is this: when this program was put together, in the context of the weeks leading up—I can take you through the numbers, but they're on the public record. We had days of 35 per cent growth, and we had quite a number of days of more than 20 per cent daily growth in a number of cases. I was there. It was a rather scary situation we were in as a country. The outlook was highly uncertain. These were estimates; these were cost estimates in a highly uncertain context in relation to a rapidly evolving situation where we were genuinely planning for the worst. We were making judgements about how to most appropriately, among other things, manage the financing needs of the Commonwealth in that context without having excessive and unnecessary impacts on the level of confidence that people could have around this sort of program.

Fast forward to the end of May. In the context of a 35 per cent increase in cases—as we had on 21 March—and an increase of more than 20 per cent over a number of days, I don't think anybody back then expected that by 21 May we would be where we were. Nobody expected that we would be where we are now. The situation is substantially better—better than we had ever hoped. That is, of course, reflected—the substantially better health context and substantially better health outlook are of course reflected in a substantially better than anticipated economic outlook. As such, the parameters are substantially different from what they were at the end of March. In the end, a cost estimate is not an actual—it's not a spending target; it's a spending estimate. It is taken at a point in time based on the best available information at that point in time. Treasury made an assessment—as they always do very professionally—in the context of what was happening in other parts of the world as well. If you look at what's happened in New Zealand in terms of the cost of their equivalent program in the context of a quasi-complete lockdown of their economy and if you look at what's been happening economically in countries all around the world, I don't think it was unreasonable for Treasury to make the prudent estimate they made at the end of March. But we do believe it was appropriate, particularly once the reporting error became obvious, for there to be a reassessment of what the likely cost was going to be moving forward.

CHAIR: My point is that it was explained at the time as a reporting error and effectively that it was business's fault for filling out the box incorrectly.

Senator Cormann: That is your translation. I reject that.

CHAIR: I think that is the public reporting on that weekend at that time.

Senator Cormann: There are two different aspects here, which—

CHAIR: I understand that, but the second aspect didn't come out until quite a bit later.

Senator Cormann: You've made an observation, so if I may. There clearly was a reporting error, but let's also put that into context. In the context of a massive program, 0.1 per cent is actually a very low number of errors.

CHAIR: That's right; I agree.

Senator Cormann: I think, in the context of filling out government forms, to have a 0.1 per cent error rate is actually pretty low.

CHAIR: So it wasn't an error?

Senator Cormann: But it triggered a recosting at that point in time in an economic and health environment that was substantially different. It was a usual estimates variation, but it was a very large estimates variation, which was a function of the higher degree of uncertainty at the end of March in relation to a very large program.

CHAIR: From my reading of that first announcement, if you go back to the tax office media release, it used a figure of up to a thousand businesses, where it's now being revised back to 0.1 per cent of 900,000 actually having got it wrong. It's taken some time for the government to change their language to 'estimates variation' from 'reporting error'. I think that is the point.

Senator Cormann: Well, in the ordinary course of events, the estimates variation would have happened in time for the economic statement, which—

CHAIR: And you wouldn't have noticed that money for a $130 billion program over six months was only dripping out the door?

Senator Cormann: Let me tell you, I remember that when I first started in this job, we had estimates variations to the tune of about $7 billion in relation to the childcare program. The childcare program is not a $130 billion dollar program, but there have been very substantial estimates variations in relation to demand-driven programs before—

CHAIR: Has there been a bigger one than this?

Senator Cormann: $130 billion was a very large starting estimate. I don't believe that we've ever had a starting estimate for any program of that size. The point is that, proportionately speaking, yes, of course, it's a big estimates variation, but in the ordinary course of events, this estimates variation, this recosting, would have occurred in the context of the next budget update, which is the economic statement now due to be delivered on 23 July. So it would clearly have been reassessed—

CHAIR: You would hope so. You would hope it would have been picked up.

Senator Cormann: but that recosting was essentially brought forward, because of what was triggered by the reporting error that was discovered by the ATO.

CHAIR: Can I go through a time line, just for the record? I think, Dr Kennedy, you have actually dealt with some of this, so I think we can move through it pretty quickly.

Senator Cormann: I'm happy to table a time line if you want.

CHAIR: Thank you. As long as it does answer all my questions—it may not. My questions relate to when, how and who, in terms of people being advised of the error. I'm not sure if that time line goes to that. We're just getting it copied. Dr Kennedy, I think you said you advised the Treasurer through his chief of staff on the evening of 21 May. Is that correct?

Dr Kennedy : That's correct.

CHAIR: Did you speak to the Treasurer yourself?

Dr Kennedy : No. Deputy Secretary Wilkinson spoke to his chief of staff. She later spoke to the Treasurer, and I later spoke to the Treasurer, that evening.

CHAIR: So you did speak to him personally that evening.

Dr Kennedy : Yes, after Jenny had taken him through what we had found.

CHAIR: And how did you become aware of it?

Dr Kennedy : Jenny informed me that afternoon, at around three o'clock—something like that.

CHAIR: That was on the Thursday afternoon.

Dr Kennedy : That's correct.

CHAIR: So it was after the appearance here—

Dr Kennedy : That's correct.

CHAIR: at the committee, where we were told that 6.3 million workers had been enrolled—900,000 businesses—and it was tracking towards the $130 billion program. In fact, I think the evidence, the discussion, was that you hadn't exceeded that costing.

Dr Kennedy : That's correct.

CHAIR: So it was a matter of an hour later. I think the committee must have risen at 1.30.

Dr Kennedy : That's correct.

CHAIR: And Treasury had no idea, when officials sat here giving that evidence, that there was something amiss.

Dr Kennedy : I think, as I outlined in my statement, we had been tracking the difference between the payments being made and the reports of employees covered. We'd been tracking that for at least seven or eight days before that. There had been exchanges—and I'll ask my colleague to come to the table in a moment—with the ATO about why the payments were not tracking in line with the reports for the number of employees covered. The payments were tracking lower, and the ATO did undertake some follow-up on our behalf. For example, they did some deep dives and they also contacted a number of large businesses.

CHAIR: Yes. I saw that in the statement.

Dr Kennedy : And because we were costing a brand new program, I guess the early hypothesis was that the larger reporters were going to come in late—it was the composition of firms covered in the flow of payments. But we continued to have discussions with the ATO about why the reported number of employees covered and the payments were not tracking together. It was not until that Thursday afternoon that the ATO informed us that they had found the reporting error and that that was what was explaining the difference in numbers.

CHAIR: Thank you, Dr Kennedy; I'll come back to you. Mr Jordan, how did you become aware and when?

Mr Jordan : I became aware at 6.02 pm on Thursday 21 May.

CHAIR: So you didn't know prior to that that work was underway to have a look at what was going on?

Mr Jordan : I knew that there was supposition around what looked like a flattening of the numbers. You've got to realise that, in the first few weeks, the numbers actually tracked pretty well to the Treasury numbers. But the growth dropped off. If you think of the axis of a graph, they were going up, but they didn't keep going up, as one would have thought. This was when people were questioning, 'Why is this so?' And I was aware that there had been some outreach to large employers—

CHAIR: You didn't tell the Treasury yourself; someone else did. Who told the Treasury?

Mr Jordan : Not myself, no. The Deputy Secretary, Second Commissioner Jeremy Hirschhorn, was dealing with the matter, and he informed me by way of a text message at six o'clock on Thursday—

CHAIR: You became aware because you received a text message?

Mr Jordan : Yes.

CHAIR: At 6.02—

Mr Jordan : At 6.01 on Thursday evening.

CHAIR: You became aware via text message that there was a $60 billion revision?

Mr Jordan : That there was now a confirmation, if you like, that there was a reduction in the number of employees—

CHAIR: Were you told that the revision was by half? Did you realise the magnitude of it in a text message?

Mr Jordan : Not the exact magnitude, but some estimate, and that it seemed that it was mostly due to a number of the small employers misunderstanding that question about how many eligible employees they had.

CHAIR: But that's very small now, isn't it? Is that the 0.1 out of 900,000—so, 90 businesses?

Mr Jordan : Look, I don't know the exact numbers. There were about 545 businesses out of 900,000 that made a mistake of some—

CHAIR: Five hundred?

Mr Jordan : I stand to be corrected, but I think 545 out of 900,000 made a mistake of some kind. You've got to realise that to the question, 'How many employees do you have?' there were all sorts of things like bank accounts, ABNs, phone records—

CHAIR: I get that.

Senator Cormann: There's an important point here though, Chair: the initial costing of the program was not driven by the forms that went into the ATO.

CHAIR: I understand that.

Senator Cormann: The initial costing was a point-in-time assessment given the health and the economic context and outlook at the time.

CHAIR: I understand that.

Senator Cormann: Because of the discrepancy in numbers that was being observed and the ATO analysis, it triggered a recosting. By the time the recosting happened, the health and economic context and outlook were better—

CHAIR: But we're asking some different questions which are trying to get to the detail of that.

Senator Cormann: But the line of questioning seems to assume that somehow it was the ATO reporting that was driving the costing and the ATO reporting that was changing the costing.

CHAIR: No, that's not the question.

Senator Cormann: It is only what triggered the exercise.

CHAIR: I understand that.

Mr Jordan : Second Commissioner Hirschhorn is much more across those details.

CHAIR: I'm getting a bit distracted. My understanding now is: of the businesses that filled out the form incorrectly with the example used by the ATO that Friday afternoon, on the 22nd, that is 0.1 per cent of 900,000 businesses.

Mr Hirschhorn : Senator, 0.1 per cent of 900,000 is approximately 1,000. So, at that date—

CHAIR: Right, so it's still 1,000—

Mr Hirschhorn : Of course, this changes every day. If I go up to 5 June, it's now about 1,500 companies which gave us a dramatically wrong—

CHAIR: Just on number of employees?

Mr Hirschhorn : On estimated number of employees.

CHAIR: Okay.

Mr Hirschhorn : As of today, about 1,500 have got it wrong.

CHAIR: Okay—so 1,500 filled out the form incorrectly, out of 900,000, as of today?

Mr Hirschhorn : Now out of a million. So 1,500 out of a million have got it dramatically wrong.

CHAIR: Mr Hirschhorn, did you contact the Treasury?

Mr Hirschhorn : Yes, I spoke to the Treasury. I'm probably not the only person at the tax office who spoke to Treasury.

CHAIR: Can you tell me at what time and who you spoke to?

Mr Hirschhorn : I spoke to Deputy Secretary Jenny Wilkinson. I can't give you the exact time, but it was at some stage in the afternoon of the Thursday.

Senator KENEALLY: Can I just pick up there, Senator Gallagher?

CHAIR: Yes, I'll come to you.

Senator PATERSON: Chair, can I have some clarity about when the call will be rotated?

CHAIR: Yes. I am rotating. It's not helped by long answers from certain witnesses, which would be—

Senator Cormann: Well, you have advised the certain witness, so—

CHAIR: The committee could be assisted—

Senator Cormann: No, no, I was advised—

CHAIR: We could be assisted with short answers. I will come to you now.

Senator KENEALLY: Just to clarify that, Mr Hirschhorn—

Senator Cormann: As you know, I always keep—

CHAIR: You talk down the clock, Senator; we know that.

Senator KENEALLY: If I could please ask Mr Hirschhorn a question, Minister? Thank you. I'd really appreciate being able to ask Mr Hirschhorn a question. It's just to clarify that, because the time line—which, I believe, has been tabled by Senator Cormann?

Senator Cormann: Yes.

Senator KENEALLY: We are attributing this time line to you?

Senator Cormann: This time line is the time line that we're tabling on behalf of the government.

Senator KENEALLY: But it's been tabled by you.

Senator Cormann: It's been tabled by me, yes.

Senator KENEALLY: It says 'on 20 May'—so, on the Wednesday; I believe 20 May was a Wednesday, and the hearing was on the Thursday—the ATO had identified that there was a difference of 3.3 million employees nominated by businesses, between enrolment and application, and that you discussed that analysis with Treasury that day.

Senator Cormann: This is the ATO—

Senator KENEALLY: The ATO discussed it with Treasury that day.

Senator Cormann: We just want to assist you with what Secretary Kennedy just said in his earlier evidence. It's precisely—

Senator KENEALLY: Well, Mr Hirschhorn just said that he discussed it with the ATO on the 21st; this is on the 20th. So I think that, given that there is a time line, it's helpful to understand, if there is a discrepancy: when did the ATO notify Treasury that there was a discrepancy in terms of the enrolments?

Senator Cormann: There are two different issues there.

Mr Hirschhorn : If I may answer—

Senator Cormann: You're dealing with two different issues there.

Mr Hirschhorn : Senator, if I could answer that—

Senator KENEALLY: Yes, thank you.

Mr Hirschhorn : There had always been, on any given day—and of course this is daily—a big difference between the number of estimated employees and the employees that had been actually applied for. So that was every day. I might flesh out the time line. On 13 May—a week before—it was recognised that there were a fair number of employers who had nominated large numbers of employees, and they were not coming in through to actuals. So, at the end of that week, we did—

Senator Cormann: That's in the timetable here, too.

Mr Hirschhorn : Yes. So we did some analysis and spoke to many of the large companies, and they confirmed that they were intending to formally apply late. But, in the next week, we had the ability to start doing a line by line analysis rather than a population level analysis. So we tried to do a line by line matching of estimates versus actuals. On the 20th, we had finished a line by line analysis of those who had moved to application. We did not provide our analysis, but we advised Treasury that, on those who had moved to application, it looked like there was a discrepancy.

Senator KENEALLY: Of 3.3 million.

Mr Hirschhorn : Three point three million is the total in relation to all large enrollers. This is not in relation to those who had moved to application.

Senator KENEALLY: I know that I'm going to lose the call here in a moment. I just want to be clear: you advised them of that on the 20th; on the 21st they turn up to this committee and don't tell us that.

Mr Hirschhorn : So I would say: at that stage, we had not done the work of those who had enrolled and who had yet to apply.

Senator KENEALLY: But there were no asterisks in their evidence; there was no, 'We are examining this.' It was just an assertion of fact. But they knew on the 20th that there was a problem emerging.

Mr Hirschhorn : All I can say is: on the 20th we had looked at those who had moved to application and we had identified that there was a problem with those who had moved to application. We had not done the work, at that stage, for those who had yet to move to application, and, at that stage, all we could say was that one part of the puzzle had overstated, but we had no idea what had happened with the other part of the puzzle, which was those who were yet to make their application. That is what we did on the 21st.

Senator PATERSON: Dr Kennedy, I should say at the outset that I'm sure we'd like to live in a world where there are no estimates variations; but, if there have to be estimates variations, I think this kind is preferable to the alternative, this kind being where taxpayers are going to spend $60 billion less and therefore $60 billion less will be borrowed than in the alternative. But perhaps for context it may be helpful for you to explain to the committee and those watching how a demand driven program differs from other sorts of programs where a specific amount is appropriated.

Dr Kennedy : Part of the advice around the design of this program and the reason we provided the advice we did around the expansion of the jobseeker program—the COVID-19 supplement—was that, as it became clear through March, the range of scenarios that were emerging was wide. The first package, for example, had demand driven elements in it, such as the investment allowance, but it was more a program targeted at roughly a percentage of GDP that was proportionate to the shock.

Senator PATERSON: That was the first package, you say.

Dr Kennedy : The very first package. In the second and third packages—and the third package really was an extension in some ways of the second package—the scenario we faced became very uncertain, so the advice that we were providing was that, whatever actions the government took, they should be robust to whatever scenario emerged. And demand driven programs by their nature are robust to scenarios such as those that were emerging. So we had looked at the advice of, for example, the OECD, which had suggested 25 to 35 per cent falls in GDP for the extent that a lockdown was in place. And we are seeing estimates out of Europe at the moment where, for example, Insee, the national statistical body in France, is talking about the French economy during the confinement period—their lockdown—being 31 per cent below what it was pre-COVID and now 21 per cent below what it was. As the finance minister mentioned, the wage subsidy program in New Zealand will cover, it looks like, about 60 per cent of their labour force. What really drives the variation in the coverage of this demand driven program is to extent which you lock down.

Senator PATERSON: I want to explore that; but, before we get there: even more elementary than that, from a budget point of view, how does a demand driven program where criteria are established to qualify for the program, and therefore forecasts or estimates need to be made about how many people will meet that criteria, differ from other budget programs when a specific appropriation is allocated and we will spend this much money for these reasons?

Dr Kennedy : In simple terms, one has to derive an estimate of the amount of demand for that program—so the extent it will be used.

Senator Cormann: It goes back to a very important point about New Zealand. We had a much less severe lockdown in Australia.

Senator PATERSON: Yes, I'm coming to that. That's a follow-up question.

Dr Kennedy : And that was just to illustrate that, if a program is in greater demand, has much greater need or has much greater take-up—that take-up can change for a variety of reasons, such as the underlying demand or because, particularly in a newly developed program, one has to be careful about understanding who will take it up, the incentives to take it up and the distribution of those incentives across the damage that might be being done in those circumstances.

Senator PATERSON: That's what I'm trying to understand. Because human behaviour is complex and you can't say for certain how people will respond to a program, there's a necessary degree of uncertainty involved inherently in any demand driven program; therefore, the estimates or the forecasts you make are conditional on the information that you have at the time and the assumptions that you make. I come to that point. When this program was being designed the late March, what was the health information that was available to you that you were using as an input to try to work out how many people were going to need to qualify for this?

Dr Kennedy : At that stage, we had no formal modelling of the evolution of the disease in Australia. We did have the indicative modelling that was being done by the Doherty institute that looked at a range of scenarios. I've outlined those in my statement. They were scenarios that, if the disease spread, were potentially going to put very significant demands on our health system. These aren't theoretical propositions. We can look at many countries with health systems very similar to our own—the UK being a very good example—where fatalities are in the tens of thousands, so they are quite plausible scenarios. Very fortunately, the sequence of decision-making in Australia has meant that, in our scenario, we've been able to contain this virus significantly, as is the case in New Zealand and a couple of other countries. But, at that stage, what measures would be required to contain the virus were not clear.

You may recall, Senator, around those times there were a number of calls, including from public commentators, about the importance of locking down the Australian economy. People weren't being particularly clear what that meant, but to lock down the economy to just essential services means—for example, the difference in what that would have meant for the construction industry in Australia, which looks like it fell by about six or seven per cent. In France, it looks like the construction industry fell by about 80 per cent. So a lockdown where industries are not able to operate at all except for a very small number of essential industries is quite different to the types of measures that we subsequently put in place. It was that type of uncertainty that we were dealing with in costing this measure. The differences here are large. I acknowledge the differences are large. They're large because the difference in the forecast for GDP in that quarter could have varied between 20 to 24 per cent and 10 to 12 per cent, and, hopefully now, it will be even less. But that's the scale of a global pandemic and the difference that it can make inside any country.

Senator PATERSON: The differences between the best health modelling that was available at the time and what has actually happened are also large. The Doherty institute modelling that you're referring to forecast that, at the low end, Australia would have 50,000 deaths from COVID-19 and, at the high end, up to 150,000. It forecast that there would be millions of infections, rather than the 7½ thousand infections that we currently have. It forecast that our ICU capacity limit would be hit very quickly and that we wouldn't have enough ventilators to go around. If that was the only information that you had on which to make your assumptions, it is understandable that the economic reality, which has been very different, would cause those variations in the estimates.

Dr Kennedy : As I said earlier, the demand driven nature of this program is crucial. If we designed a program that simply paid cash payments to a different group, that would be a fixed amount. Where we didn't understand fully the extent of the shock that Australia would face but where we could see what was occurring in other countries—Italy, for example, and Spain, where the Spanish central bank has been reported overnight as saying that their economy might fall by as much as 20 per cent in the June quarter—we had to design measures that were robust to those outcomes. Obviously, the health decisions that were being made by the premiers and the chief ministers, and being led through national cabinet by the Prime Minister, were going to be crucial, but we did not know the outcome of those measures just yet, so we designed a program that was robust to those scenarios but was costed against the more severe scenario. Then we watched and waited while circumstances unfolded.

Senator PATERSON: So you didn't understand what the health outcomes were going to be for sure and, therefore, you didn't understand the flow-on consequences for the economy. You also didn't know how long those restrictions would need to be in place. I know the Prime Minister was saying publicly at the time that this could go for as long as six months and that it might be necessary to have these measures in place for six months. In the end, it looks like we're going to wind down many, if not all, of those well before that six months. That obviously has a profound implication for programs like JobKeeper.

Dr Kennedy : The base case scenario—the one around the 10 to 12 per cent fall—was assuming that the set of restrictions that ultimately was put in place would be needed for six months. That was the advice at that stage. It was our choice to choose an eight-week lockdown followed by a fallback to the restrictions that were being put in place in late March. But we felt that was a plausible severe scenario in the face of the fact that other countries were in the midst of that and some of them actually locked down for longer and are still locked down for longer. Others have managed to do it for much shorter periods—New Zealand being the stand-out example—but most countries have locked down for at least two months, if not longer. And their lockdowns have varied, so the impact has varied. I should say that it's not just the lockdown. If the disease had been spreading through the country and intensive care units were being overwhelmed or the health system was under pressure, there would have been a very large withdrawal from normal activity by people because of, frankly, the fear that would have been present. We are very, very fortunate in Australia not to have faced those circumstances that other countries have faced.

Senator PATERSON: Are you aware of any major forecaster, public or private, that was able to accurately predict either the health outcomes or the economic outcomes?

Dr Kennedy : No. It's a good question. There were a wide variety. I'm noticing at the moment that there are a lot of very accurate forecasters after the fact—

Senator PATERSON: It's best kind of forecasting, isn't it?

Dr Kennedy : but not many before the fact, I think, and so—

Senator Cormann: But this is the point, Senator: it was a genuinely rapidly evolving situation in a very, very severe way, and we were planning for the worst. The context at the end of March, even though it was only two months prior to the recosting, was substantially different. So of course the fiscal outlook in relation to the same program in the context of a massively improved circumstance is going to be different. Any reasonable person would understand that.

Senator PATERSON: In my remaining time, I want to move to broader economic questions. As interested as I know my constituents are in estimates variations and the subtleties of budget forecasts, I know they're a bit more interested in jobs and the health of the economy more broadly. Since you last appeared before the committee, we now know that Australia is in a recession—not that that would be a particular surprise to anyone. How is Australia's economic performance ranking against other similar countries?

Dr Kennedy : Our performance is, frankly, ranking very well. It's primarily driven by the health decisions, I would say, in the first instance. The programs are incredibly important. If the disease had been spreading rapidly through the country and the population was concerned and if we'd seen the types of fatalities which other countries have experienced on a daily basis but which we've experienced in total, I think there would be a very different dynamic. But, instead, those health decisions have been timely and prudent and have seen us in a much better position, including from an economic perspective. So we have steadily revised down our estimates of the economic impact of the health measures and other measures. But it will still be, as I said in my opening statement, a very significant shock to the economy and one we've never experienced.

I will say this very quickly: there are the two dimensions here. There is the supply side—the fact that governments through their health restrictions have stopped activity—and, secondly, there is the demand side. There is the precautionary side, with people putting money aside and actually getting ahead on their mortgage repayments because they're concerned about future employment. Business and consumer confidence is returning. It will be crucial to the recovery. It will be driven by confidence that the health issues are well managed. As people see a cycle of positive economic activity and as people get back to work, we will see recovery. But we are well ahead of where I imagined we would be in March when we put these estimates together.

Senator PATERSON: How does that 0.3 per cent decline in the March quarter compare to other countries?

Dr Kennedy : It's a very small fall compared to other countries. Other countries saw record falls in the March quarter; they will see much larger falls in the June quarter. I still expect that we will see a large fall in the June quarter, but I do not think it will be nearly as large as what many, many other countries will experience.

Senator PATERSON: And not as much as we expected we would experience either.

Dr Kennedy : No.

Senator PATERSON: What does it mean for the recovery of the Australian economy after the June quarter?

Dr Kennedy : Interestingly, they may have higher growth rates, but, if you like, they're coming off a much lower base. The level of our economy will be higher. It leaves us much better placed to avoid some of the devastating circumstances of very large falls where many businesses go broke, their employees lose their jobs and they have to be re-established. If we can avoid that cycle of destruction—and we have done well to date, but we still have quite a way to go—it will enable us to recover much more quickly.

Senator PATERSON: Thank you, Dr Kennedy.

Senator SIEWERT: I want to go to the removal of JobKeeper for child care and the withdrawal of free child care. When that decision was made, Minister, was the impact on women taken into consideration?

Senator Cormann: Well, the impact of the return back to the previous arrangement—the entire impact—was taken into consideration, including the impact on working women. And given the level of growth in demand for the childcare sector, and given the opportunity for us to return back to the childcare subsidy arrangements, in combination with the business continuity payment—that is why the decision was made. There was a big cliff that we had to deal with in April, but clearly there was a strong recovery, in particular in that sector, and there was an urging from the sector that we return back to a more normal situation at this period.

Senator SIEWERT: That's not what we've been hearing from the sector and the media since the announcement was made. Do you acknowledge that women have lost their jobs at a higher rate than men have during this crisis?

Senator Cormann: I might let Treasury comment in relation to the data.

Dr Kennedy : Women and younger people have been over-represented in the falls, and a lot of that is around the structure of the industries that have been most affected—arts and recreation, retail, accommodation—areas where employment was more dominated by—

Senator SIEWERT: By women.

Dr Kennedy : Yes, by women—and by young people, I would say, as well.

Senator SIEWERT: Was any modelling done or any consideration given to the fact that more women have lost work and have been more significantly impacted? Was modelling done on the basis that it was women who were increasing the demand for child care? And was consideration given to the fact that most of the workers in the childcare sector are women?

Senator Cormann: We considered all of these matters, and that is why the government, among other things, decided to ease the activity test until 4 October to support eligible families whose employment has been impacted as a result of COVID-19. These families will receive up to 100 hours of subsidised care per fortnight during this period, which will also assist families to return to the level of work, study or training that they were undertaking before COVID-19. The survey we did of the sector showed that 99 per cent of providers had opened. It shows that that worked, and we're making sure that we can work through this transition and cater for this increased demand as well as we possibly can. We've also got a $708 million transition payment, which will be available to every childcare service, not just those with employees who are receiving JobKeeper. That was the other issue: not every childcare centre was necessarily eligible for JobKeeper. So, the view is that these support arrangements as they now apply, where there's a capacity to provide a childcare subsidy—which is the usual arrangement—and where there's a capacity for parents who can afford to contribute to do so but where there is also an additional transitional support payment to the sector, irrespective of whether or not the workers in that centre are eligible for JobKeeper, is a more fair and equitable way to provide support to that important sector.

Senator SIEWERT: Whose view is that? That's not what we're hearing from the sector overall. We're hearing concern about loss of jobs, which are women. We're hearing very strong concern from women who say that this is going to impact their ability to find work, and they're going to be the ones who are excluded from work, when they're the largest-hit already.

Senator Cormann: Again, we're providing business continuity payments. We're providing childcare subsidies. There is a capacity now, as the restrictions in the economy ease, for quite a few parents to contribute the way they used to. But we have made transitional arrangements. Firstly, the childcare fees will be capped at the level of the reference period, which was 17 February to 1 March. Services will need to guarantee employment levels to protect staff who will move off the JobKeeper payment as part of the period of the transition. We will pay approximately $2 billion in childcare subsidies this quarter to eligible families. There is ongoing support, but we are transitioning to a more normal situation given what is happening in the market.

Senator SIEWERT: Thank you for that but you didn't answer my question. Have you done any modelling or made any consideration of the impact on women who will be affected by, potentially, further unemployment from the childcare sector but also in their capacity to find work?

Senator Cormann: I've just made the point that the government will pay childcare services a transition payment of 25 per cent of their fee revenue during the relief package period—that is, an additional $708 million payment across the sector—as well as the childcare subsidies and—

Senator SIEWERT: Did you—

Senator Cormann: If I may, this is a relevant point. For the period of the transition, services will need to guarantee employment levels to protect staff who will move off the JobKeeper payment. I don't know why you keep repeating this proposition of people losing their jobs as a result of the adjustment that we've made in order to transition the childcare sector back to a more business-as-usual situation.

Senator SIEWERT: Did you consider the drop in demand with the change in circumstances?

Senator Cormann: We've been seeing a growing demand, so—

Senator SIEWERT: The point being made by the sector is there'll be a drop in the demand with these changes.

Senator Cormann: What we are observing is a rise in demand, and we believe we're providing the appropriate supports and the appropriate transition back into a more normal situation. But as we work through that transition the conditions are still much more flexible than they would be in a total business-as-usual situation.

Senator SIEWERT: I realise you probably won't know, but could you take on notice who was consulted in the making of this decision from the childcare sector? Also was there any consultation and consideration of the impact it will have on women's ability to find work?

Senator Cormann: Yes, I'm happy to take it on notice. It's a matter that was led by the education portfolio, obviously, not the Treasury portfolio. I will endeavour to get that answer—

Senator SIEWERT: It's JobKeeper in this portfolio that's impacted.

Senator Cormann: I will endeavour to get you that answer out of the education portfolio.

Senator SIEWERT: Thank you. What other stimulus packages are you considering, in terms of job generation specifically targeted at women, particularly in the care portfolios and the care economy, where it clearly shows there's room for job growth?

Senator Cormann: We have provided significant support in that space already. We are doing further work, in relation to a whole range of areas in the economy, including the one you mentioned. As decisions are made and we are ready to make announcements we will make those announcements, but it won't surprise you that I'm not in a position today to speculate about work that is still underway.

Senator SIEWERT: Are you considering that particular sector and, in particular, women in respect to that sector?

Senator Cormann: We are considering all sectors of the economy where there may be a need for additional measures. And we are considering how best to provide appropriate support through the transition to all Australians—male, female, children, old, young. We are making judgements—what measures we may appropriately take—to assist Australia through this transition into the strongest possible economic recovery on the other side.

Senator SIEWERT: Dr Kennedy, I have asked this before. In the current circumstances, can you tell me what unemployment rate you are now looking at for when JobKeeper and jobseeker theoretically end at the end of September?

Dr Kennedy : There are some complications. Were you present when I gave evidence last time about the measured unemployment rate—

Senator SIEWERT: Yes, I asked the question.

Dr Kennedy : Apologies. Around September, the unemployment rate is, I think, likely to be in the order of eight per cent. But it's quite hard, because of the measurement issues at the moment—the fact that there are people on JobKeeper who have zero hours, what the effective unemployment rate looks like and the fact that the actual measured unemployment rate is 6.2 per cent. So we will see the measured unemployment rate rise to what is the real underlying unemployment rate. I think of the unemployment rate in that order. In line with my earlier response to Senator Paterson, we have been steadily revising down our expectations of how high the unemployment rate will rise, because of the fact that the health scenario has continued to improve.

Senator SIEWERT: That is why I was asking.

Dr Kennedy : But unemployment always lags the return on growth. Often what you find is the return on growth involves people doing additional hours before they begin to employ additional people, and so you see hours recovering more rapidly before they begin to soak up additional jobs or engage additional people. I should say, though, as I have said before, that we're in some country here which we have just not experienced. We have not watched governments, through their decisions, effectively see parts of the economy stop and then get restarted, so there is quite a degree of uncertainty about how it restarts. But I would be the least bit surprised. I think the unemployment rate won't go as high as we previously thought, but I would think it would be up in that order by the end of the year. We have not finalised estimates. The government will publish an economic update on 24 July in which it will publish its forecasts.

Senator SIEWERT: Thank you. I will come back to that later.

Senator WHISH-WILSON: I ask my question to Mr Jordan. It was reported in the Financial Review this morning, in an article by John Kehoe, that New Zealand has an open register of employees who are receiving their version of JobKeeper. Do you have any views on the benefits of an open register providing transparency on which businesses are receiving JobKeeper in Australia?

Mr Jordan : It's not something I had given any thought to until I saw that article. But we have Acting Second Commissioner Kirsten Fish here on the screen; she might be able to fill you in on some of the potential restrictions that we have on us. It comes back again to that protected information and secrecy laws. I could maybe invite Kirsten Fish to make a comment.

Ms Fish : As Commissioner Jordan mentioned, the information that we collect under the JobKeeper program, because that is a taxation law, is protected information. So information that can identify an entity that has enrolled in and is participating in the JobKeeper program can't be disclosed except under limited circumstances, and those circumstances are detailed in the legislation itself. There are very few circumstances in which we can disclose the identity of eligible employers, so at the moment, under the current law, it wouldn't be possible for us to produce such a public register. Your question, I think, though, was whether—

Senator WHISH-WILSON: There are benefits—

Ms Fish : there are benefits, but that is a policy question.

Senator Cormann: I may assist there if you want. It is very important to remind ourselves that the JobKeeper scheme was established under existing mechanisms to ensure that we could respond to the economic impact of COVID-19 as quickly, as swiftly and as efficiently as possible. As such, the existing tax administration framework applies to the program and the interaction between businesses and the ATO and, as Ms Fish indicated, those tax laws generally prohibit the publication of protected information of a particular business or individual. So the public disclosure of businesses that are in receipt of JobKeeper could act as a disincentive also to participate in the program, which could reduce support to workers. That is also something to bear in mind.

It is not necessary to publish the names of businesses to ensure that workers get paid their $1,500 JobKeeper payments. An employer must advise all its eligible employees that it is participating in the scheme. This is a requirement under the rules, and there are a range of penalties that could apply if a business fails to properly give its eligible employees the opportunity to be nominated for JobKeeper. We believe that we got the balance right in terms of safeguards but also making sure that the scheme was able to be implemented swiftly and efficiently in the circumstances and that we did not provide any disincentives for businesses to take advantage of this when this is ultimately a benefit for the employees.

Senator WHISH-WILSON: The Fin Review also reported last week that one company has already been investigated by the Federal Police for manipulating cash flows to receive JobKeeper. Will this kind of thing be looked at by the ATO? Are you doing any work on this at the moment, or will this be part of an audit process post COVID and post JobKeeper?

Mr Hirschhorn : Yes, we do have a compliance program in place that has pre-issuance elements and also post-issuance elements—more traditionally audits and whatnot. You referred to a particular case, and that is a case which is under the Serious Financial Crime Taskforce, of which the ATO is an important member, as is the Australian Federal Police. There will be a range of ordinary audit activities around, for example, turnover manipulation, but also, in extreme cases, the police may well be interested as to whether there are fraudulent elements.

CHAIR: Final question, Senator Whish-Wilson.

Senator WHISH-WILSON: Okay. Just going to another subject—I'll put more detailed questions on notice around that—I understand that, Fair Work have been letting eligible employees know—in response to those employees being left out of getting JobKeeper by their employers under the one in, all in rule—that Fair Work doesn't have the power under the existing legislation to enforce that rule or to seek punitive measures or penalties against the employers. Is that correct? Is that Treasury's understanding?

Mr Hirschhorn : The way the legislation is set up, the eligibility tests are matters for the tax office, albeit they use concepts which are very similar to those used under the Fair Work regime. When such a disagreement arises between an employee and an employer, we encourage the employee at the first instance to have a discussion with their employer. Hopefully, the employer seeks guidance or looks at our guidance as to how we're interpreting the eligible employee tests. The next level, if there were no satisfaction there, is for the employee to contact the tax office. We will have a look at their situation. We're sometimes a little bit hamstrung because of information-sharing constraints, but, if we think there is a problem, our next level is to speak to the employer and to provide them some help and education as to who is entitled and how they should apply the rules, with the aim being that the employer brings their employee into JobKeeper. It's only at a next level that we may look at penalising the employer.

Senator WHISH-WILSON: So you don't refer some of those employees directly to Fair Work. I've been told by employees that they've just been told by the ATO to take this up with Fair Work, and then Fair Work have told them that they don't have the ability to enforce this. I've been told that directly.

Mr Hirschhorn : This is fast moving. Because of the similarity of the tests, we did refer some people to Fair Work, and there are Fair Work elements of JobKeeper. Recently, and going forward, we've been following this other path, which is to reach out to the employer and provide them some help and assistance as to the scope of the scheme, with the hope being that the employer brings their employee onto the scheme. There is little solace to an employee who is off the scheme if their employer is penalised. Our aim here is to get the employees on the scheme, if they are eligible.

CHAIR: Thank you. Could the committee be provided with the modelling that's been done around the government's decision on child care—as it's announced, not—

Senator Cormann: I'll take that on notice. It's not in this portfolio. It's in the Education portfolio, but I'm happy to assist the committee.

CHAIR: But wouldn't Treasury have been involved in some of the modelling of the impacts of—

Senator Cormann: No. The costing of expenditure measures is done through Finance, which is also not appearing here with me today. But I'm—

CHAIR: We can fix that.

Senator Cormann: Sure. By all means. I know Finance would love to appear.

CHAIR: So you weren't involved in any of the analysis around the government's decision on the child care—

Senator Cormann: That is also not right. That's not what I said.

CHAIR: No, I'm asking the question.

Senator Cormann: If I may, clearly decisions in relation do these matters are taken in the usual way, through the Expenditure Review Committee. That means that all of the ministers involved through that process are supported by their respective agencies, including Treasury—the Treasurer by Treasury—but the modelling and the costings work that you're referring to is something that is managed between Education and Finance.

CHAIR: You have taken that on notice. Can I then ask, Treasury, if you can provide the committee with your analysis on the government's announced package for child care? Could we have access to that information?

Senator Cormann: Sure. I will see what we can provide on notice.

CHAIR: Dr Kennedy?

Senator Cormann: The minister has answered the question.

CHAIR: We are struggling to get any modelling or any documents from the government, Minister. It's beyond me why you wouldn't assist the committee and provide that information.

Senator Cormann: I thought I was being very helpful. I continue to be very helpful. I always do my best.

CHAIR: We've been after the date you first got briefed—

Senator Cormann: I'm even trying to keep my answers short, because I was being too expansive.

CHAIR: That is welcome.

Senator Cormann: I was told I was taking too long.

CHAIR: We've been chasing the economic modelling since 30 April and we're still awaiting an answer on it. It has been on the government's desk since 30 April and we are still without a response on that. I draw that to your attention. Minister, last Friday the Prime Minister said at a press conference, when asked specifically about JobKeeper:

But the six months provision of JobKeeper has been set out in legislation and people can count on that.

The journalist then asked him:

You can guarantee that? That will be there until the end of September?

And the Prime Minister said yes. Why, then, did the Prime Minister guarantee that JobKeeper will remain until September and that people can count on it and then less than 24 hours later break that guarantee?

Senator Cormann: I don't agree that that's what was done.

CHAIR: He has done exactly that. What if you're a childcare worker?

Senator Cormann: JobKeeper is in place until the end of September.

CHAIR: Not if you're a childcare worker.

Senator Cormann: In relation to childcare workers, the payment has been replaced with a transition payment and the payment of the childcare subsidy, so support continues to be provided. This was always temporary support and there were specific circumstances—

CHAIR: But he guaranteed it until September. He said yes. To, 'Can you guarantee that?' he said, 'Yes.'

Senator Cormann: And the program is in place until September.

CHAIR: But not for the childcare sector.

Senator Cormann: In relation to the childcare sector—

CHAIR: He didn't say 'except for childcare workers'.

Senator Cormann: That is because, in relation to the childcare sector, there is a fairer and more equitable way—

CHAIR: He didn't say that on Friday.

Senator Cormann: Well he wasn't asked that question.

CHAIR: He was asked about child care on Friday, and he said—

Senator Cormann: I did not hear you read out a question in relation to the childcare sector there.

CHAIR: He was asked about child care at the same press conference. He said, 'We'll have something to say about that soon.'

Senator Cormann: And we had something to say about that soon. That's precisely what happened.

CHAIR: It implies that he knew. That is even worse for the Prime Minister, because it implies he knew at that point that you were cutting it for childcare workers—

Senator Cormann: I disagree.

CHAIR: and still gave the guarantee that it would be there until September?

Senator Cormann: There are two different things. Firstly, of course, the Prime Minister knew that we have representations—

CHAIR: It's convenient.

Senator Cormann: out of the industry that there was a fairer and more equitable way to provide support to that sector, and the transition back to—

CHAIR: So the industry asked for this?

Senator Cormann: If I may finish my answer? Chair, you are being quite disorderly, if I might say so. The Prime Minister clearly knew that we had received representations and that we were thinking about how we could provide support to the childcare sector through this transition into a situation on the other side in a fairer and equitable way.

Separate to that, a question was asked about the JobKeeper program—whether or not it would remain in place. Yes, it is remaining in place over that six-month period. That is precisely accurate.

CHAIR: 'People can count on that,' was the language used.

Senator Cormann: Yes.

CHAIR: And then it should have in brackets 'other than childcare workers'.

Senator Cormann: Well, you're taking something out of context, if I may say so, because we've also said—

CHAIR: I don't think I am. He was asked about JobKeeper.

Senator Cormann: Well, we've also said that there would be a review of the JobKeeper arrangements halfway through. That's been a matter of the public conversation for some time, and I suspect it may have come up that day in that press conference. Of course, this is a program that's in place for six months. There's a review that is taking place, around the halfway mark, which is being conducted by Treasury, and there may well be some further adjustments made at the edges in the context of the economic statement of 23 July. We've also made that point.

CHAIR: When you talk about 'adjustments', does that mean more people are going to get kicked off JobKeeper before September?

Senator Cormann: Well, the problem with child care—

CHAIR: Is that code?

Senator Cormann: No. The problem with the childcare sector was that quite a few employees in the childcare sector were not eligible for JobKeeper and there was a better way to provide transitional support to the childcare sector that was specific to that sector, which is why we are making a $708 million transitional payment on top of about $2 billion worth of childcare subsidies, while also making sure that those parents who can afford to make a contribution towards the cost of their children's child care are able to do so, rather than to have this blanket arrangement where child care is free for everyone irrespective of income.

CHAIR: So the childcare industry asked to be kicked off JobKeeper, did they?

Senator Cormann: Well, there were representations, and you are going well beyond, I guess, the Treasury portfolio; it's best to address these questions to the education portfolio. But, in the broad, the advice that was put to us through the education minister was that there were strong representations from across the childcare sector that there was a better way to provide transitional support to that sector over the remaining period as we are transitioning back into a situation as normal. These sorts of supports clearly were always temporary, and the question now is: how can we best, most fairly, most equitably and most appropriately transition relevant sectors out of this period with temporary support into, I guess, business as usual on the other side? That is what we're doing.

CHAIR: How many childcare educators are currently receiving JobKeeper? I presume Tax have that number—or Treasury.

Ms Wilkinson : My understanding is that there are around 120,000 employees in the childcare sector who may be receiving JobKeeper payments.

CHAIR: Are receiving or may be receiving?

Ms Wilkinson : My understanding is that they are, but I think I would like to confirm with the tax office.

CHAIR: Okay.

Senator Cormann: But I've got to say this again: instead of JobKeeper payments, transition payments and childcare subsidies are being paid.

CHAIR: I'm just asking about JobKeeper, though.

Senator Cormann: For a centre to access the transition payment, they've got to give a guarantee of employment levels to protect staff who will move off the JobKeeper payment.

CHAIR: Yes.

Senator Cormann: So this proposition that somehow—

CHAIR: So can you guarantee no jobs will be lost from the childcare sector?

Senator Cormann: Well, what I can guarantee is that the childcare services which access the transition payments have to provide a guarantee that employment levels remain at the same level, to protect staff who will move off the JobKeeper payment.

CHAIR: So you won't guarantee there won't be any job losses. Will childcare educators be worse off under this new arrangement than they are now?

Senator Cormann: Well, you are asking me to—I'm not aware of every individual circumstance in every individual business. What I do believe, based on the advice that we've received, is that the arrangements that we're putting in place for this transition will be fairer and more equitable across the sector as a whole.

CHAIR: Will childcare workers be worse off under this new arrangement?

Senator Cormann: In the broad, childcare workers' employment levels are being protected under these arrangements. As demand for their services goes up—

CHAIR: So you won't answer that question. Surely you've been briefed on that. As the Minister for Finance, surely when this comes before the ERC you would have to consider who is worse off, who is better off—

Senator Cormann: I'm going to leave the specifics to the Minister for Education. What I'm saying to you, again, is that we're providing substantial support. We are providing flexibility through this transition—for example, in relation to the activity test that we would normally apply. Childcare subsidies are being paid as they used to be. On top of childcare subsidies being paid as they were before, an additional transitional payment of about $708 million across the sector is being made. On top of that, compared to a free-childcare situation, parents are now contributing—subject to their own income, because childcare subsidy is means tested. To the extent that families are able to contribute to the cost of child care for their children, they will be providing additional revenue for those childcare centres. So childcare workers do not need to be worse off as a result of the changes that we are making, but I'm not going to provide a blanket statement—

CHAIR: Are they going to be better off?

Senator Cormann: Over time, childcare workers will be better off if our economy bounces back strongly—if we go back into a strong economic recovery and the demand for their services continues to grow as we have been witnessing that it has been in recent times.

CHAIR: So your response to building a better childcare sector is to boot 120,000 workers off JobKeeper three months earlier than the Prime Minister said, on Friday, would happen?

Senator Cormann: We are replacing one form of support, which was always temporary, with a different form of support—

CHAIR: With less support.

Senator Cormann: which for that sector is fairer and more equitable. You've got to look at the combination of payments. The combination of payments will be the transition payment and the return of the childcare subsidy, which is means tested and which means that those parents who can afford to do so are contributing towards the cost of their children's child care. We think that is entirely appropriate given what we've been observing in the economy.

CHAIR: What other sectors is the government considering removing JobKeeper from before September?

Senator Cormann: At this point, we have not considered any other sector.

CHAIR: So why just child care?

Senator Cormann: I would just add that we are of course yet to receive the review from Treasury, and I'm not sure of what Treasury may or may not recommend following the findings of their review in the future.

CHAIR: Will you rule out other sectors losing JobKeeper before September?

Senator Cormann: You're going back to the question that you are asking—

CHAIR: Yes—because I'm still waiting for an answer.

Senator Cormann: What triggered this was representations received by the government, through the Minister for Education, out of the childcare sector. These representations were assessed and judgements were made on how government support through this temporary transition could be more appropriately structured for that sector—and that is precisely what we have done. I can't—

CHAIR: You're maintaining that the childcare sector asked to have its employees removed from JobKeeper ahead of September—that's your argument?

Senator Cormann: I'm absolutely maintaining that the government received representations from across the childcare sector—

CHAIR: So it's the childcare sector's fault?

Senator Cormann: That's your characterisation. I actually think what we are doing is the right thing.

CHAIR: To offer less support to childcare workers?

Senator Cormann: I wouldn't characterise it as fact. I don't accept that characterisation at all. We are providing more appropriate support through this transition given the capacity for many parents to contribute to the cost of their children's child care as they have done in the past. So we have adjusted the way the support is provided through the remaining period of this transition. It was triggered by representations to the government out of the childcare sector through the Minister for Education.

CHAIR: Will other sectors lose JobKeeper before September?

Senator Cormann: Again, we have not made any decisions in relation to any other sectors. I am not aware of any other sectors being in scope in any way. But I would qualify that by saying at this point I'm not aware of what the findings and the recommendations of the Treasury review into the operation of the JobKeeper program over the initial three months is going to be.

CHAIR: So the Prime Minister's guarantee that JobKeeper will be there and that people can count on it isn't really a guarantee at all, is it?

Senator Cormann: I completely disagree with that. Again, JobKeeper will be there—

CHAIR: Based on your last answer, where you won't rule out more people being removed from JobKeeper, what are they counting on?

Senator Cormann: I won't rule out adjustments at the end of a review. I can't pre-empt or hypothesise—

CHAIR: So people can't count on it, because at the end of the review there may be adjustments and those adjustments might be people.

Senator Cormann: The Labor Party has called for adjustments.

CHAIR: To include, not exclude, people.

Senator Cormann: No, no; you've called for other adjustments. You've asked for the pay of casuals who don't ordinarily earn $1,500 to be adjusted downwards. That's what Labor has called for.

CHAIR: I presume the review is looking at that.

Senator Cormann: So don't tell me you haven't recommended any adjustments; you have. What I'm saying right now, as I sit here—

CHAIR: I'm not the Prime Minister, and I'm not giving guarantees in media conferences that people can count on JobKeeper being there for the entire six months until the end of September.

Senator Cormann: What the Prime Minister said is right: JobKeeper will be there until the end of September.

CHAIR: Except there was a little footnote, wasn't there: except if you're child care and except if there are going to be other adjustments after—

Senator Cormann: If there are better ways to provide support, do you think we should not consider those?

Senator WATT: So, essentially, your position is that the JobKeeper legislation, but not necessarily the JobKeeper payments, will be there until September, depending on what industry people are in.

Senator Cormann: The JobKeeper program will be there until the end of September, as we've said, but we've always been clear—and it's been part of the public conversation for some time now—that, halfway through, there will be a review. That review will no doubt make some findings about how the scheme has been operating and is likely to make recommendations to government on how, given the revised economic circumstances, a program of this size may be appropriately adjusted. There may not be any recommendations at all; Treasury may say it is all working as intended across the board and that there's no need to make any adjustments. That may well be where they land—I don't know.

Senator WATT: A childcare worker can't roll into a shop and hand the shopkeeper a piece of legislation that says there's a JobKeeper payment. You can't use a piece of legislation to pay your bills, can you?

Senator Cormann: You're making assumptions here—

Senator WATT: Well, 120,000 of them are losing JobKeeper and you can't guarantee they'll have the same money.

Senator Cormann: Hang on. We are providing additional payments of $708 million across the sector on top of the childcare subsidy and the payments by parents—

Senator WATT: But you're not prepared to say that they won't be worse off.

Senator Cormann: and any childcare service that accesses these transitional support payments will need to provide a guarantee around employment levels remaining the same, to protect staff who will move off the JobKeeper payments. I think that we have gone out of our way to ensure that the appropriate safeguards are in place while also ensuring that support payments can be provided to these childcare services in a fairer and more equitable way.

Senator WATT: You said there were representations from the industry. Were there any representations from childcare workers or their representatives?

Senator Cormann: I'll have to take that on notice. You're getting well and truly into the education portfolio.

Senator WATT: No, JobKeeper is administered by Treasury. I don't know if someone from Treasury might know whether workers or their representatives were consulted about losing JobKeeper.

Senator Cormann: You are well and truly going into the education portfolio.

Senator WATT: Doesn't Treasury oversee JobKeeper? Would you like to let Dr Kennedy answer the questions?

Senator Cormann: Dr Kennedy can of course answer, but let me say again: the government support arrangements through this transition to childcare services have been led by the education portfolio.

CHAIR: Dr Kennedy, did you have anything to add there?

Dr Kennedy : We are responsible for the JobKeeper program. Ms Wilkinson can answer questions about that. This is a policy led entirely by the education and employment department. Our role is in how it intersects with JobKeeper and the numbers of people on JobKeeper; we're responsible for that part of the policy development.

CHAIR: Can I just have the committee agree that the time line provided by Senator Cormann earlier be accepted? Thank you.

Senator LAMBIE: Dr Kennedy, can you tell me what the capacity of those childcare centres was before COVID-19? What is the number of children using those childcare centres as of today? Where are we up to? You have to be doing the numbers on this somewhere. I'm hoping that you, not the education department, can supply that.

Dr Kennedy : Senator Lambie, I apologise; I don't have those numbers.

Senator LAMBIE: What are you basing it on then, Dr Kennedy? I'm sorry, but how do you know all of those kids are back? What's the go here? I'm just trying to work out how you're getting these numbers.

Dr Kennedy : The 120,000 people on JobKeeper number?

Senator LAMBIE: No, I'm talking about the kids. I need to know that those kids are back in those childcare centres to make sure that those people on JobKeeper keep their jobs. If only 50 per cent of those kids have gone back to using those childcare centres then we're going to have a problem.

Senator Cormann: Across the childcare sector, based on our most recent survey, demand has hit 74 per cent. This is the representation that we received. Services were keen to expand their offering—expand—to support more families. Adjusting the transitional support from one where it was JobKeeper to one where there is this additional transitional payment, plus childcare subsidies, plus fees paid by parents who can afford to do so, does give the sector—

Senator LAMBIE: Minister, I'm asking you: what is the number of kids that were there before COVID-19 and are back there today?

Senator Cormann: The portfolio that can provide those answers is the education portfolio. This is not a Treasury or ATO question.

Senator LAMBIE: Okay. So where does the 74 per cent capacity come from?

Senator Cormann: That is the advice out of the education portfolio that I shared with you, because that's what I've been provided with. Demand across the childcare sector, based on our most recent survey—and this comes from the education minister—has hit 74 per cent, and services told us that they're keen to expand their offering to support more families. This committee can invite the education portfolio to appear in the same way as the Treasury and ATO have been asked to appear, and I'm sure they would make themselves available.

Senator LAMBIE: Does anyone have any idea of the number of children that went into child care because it became free that will not now have that?

Senator Cormann: The education portfolio would have that data.

Senator LAMBIE: Dr Kennedy, JobKeeper would have been an important safety net for the childcare industry. I know a lot of providers are wondering whether they will lose revenue because of the announcement yesterday. Has Treasury considered removing other sectors from the JobKeeper program, either at the request of the government or of your own accord?

Dr Kennedy : No.

Senator LAMBIE: Does anybody know why we have singled out child care?

Senator Cormann: I tried to explain this before—because across the childcare sector quite a few employees were not eligible for JobKeeper and the representation that we received was that there was a fairer and more equitable way to provide transitional support through this period from government than JobKeeper for that particular sector, given the circumstances in that sector and given the way the government funding is traditionally provided into that sector. As we need to transition off JobKeeper ultimately, there was an opportunity here, given the increased level of demand across the sector, to return to a combination of childcare subsidy payments, which have been there before and which are accessible depending on your level of income at appropriate levels; a transition payment of $708 million across the sector; and payments by parents. When child care was entirely free there was no contribution from parents and there was no childcare subsidy. Now we have the transitional payment, we've got the childcare subsidy and we have parent contributions mean tested on top of that.

There was a lot of revenue lost under the previous arrangements just with JobKeeper and the business continuity payment. A lot of potential revenue was lost out of that sector which could have come from parents who could afford it. By us making that change we are essentially facilitating that parents who can afford to do so are able to contribute to the cost of their children's child care again. In all of the circumstances we felt that that was appropriate and it was a fairer and more equitable way of providing support into that sector.

Senator LAMBIE: So, economically, it's not going to boom back for breakfast in the morning, is it? Let's be honest about that. You expect all those kids to go back into child care if their parents, especially their mothers, don't have jobs? This is what's bothering me. We're assuming that things are going to go back to normal, and yet, instead of giving them the 50 per cent rebate, we're only going to give them 25 per cent. That's based on the normality we're assuming—that people are going to go back to their jobs, not work from home.

Senator Cormann: There are a couple of important points I need to make in relation to this. The childcare subsidy is means tested, and that ensures that those who earn the least receive the highest level of subsidy. So families with reduced incomes in the circumstances you've just described would update their details to ensure they received a higher subsidy rate than they were previously eligible for. On top of that, the childcare package actually has a very generous safety net, which is designed to provide even higher subsidies to families that find themselves in a particularly challenging period. There's an additional childcare subsidy which is available to families under temporary financial hardship which provides increased childcare fee assistance to families under financial stress due to exceptional circumstances, and eligible families can receive free care up to 120 per cent of the hourly rate cap, depending on the fees of the service, for the maximum 100 hours per fortnight. So there are safeguards in the system.

So we have eased the activity test, all the way until 4 October. We are returning to the childcare subsidy, and those on lower incomes, because of less activity, are able to get higher subsidies; but those parents who can afford do so are also able to contribute to the cost of their children's child care, and hence to the cost of running those childcare services. On top of that, we have the $708 million transition payment, which ensures that government support is accessible for every childcare service, not just those with employees receiving JobKeeper. So it's a fairer and more equitable way to spread the level of government support across the sector as a whole.

Senator LAMBIE: Mr Kennedy, has Treasury done any modelling on how much the demand for child care will rise or fall (1) if parents won't have to start paying again, because I'm assuming that they will have to pay, or (2) if they don't have a job to go back to and therefore the children won't need to be put into child care?

Dr Kennedy : We haven't done modelling on that. The education department would normally lead that type of analysis.

Senator LAMBIE: So how do you come up with $700-and-something million to fill in the hole just in case, as a backup?

Senator Cormann: That's a costing. I explained this earlier to Senator Gallagher. The education department designed the policy features of the adjusted transition arrangement. The costing is then determined by Education, working together with Finance, testing some of the assumptions that are made. The $708 million transition payment value is a costing agreed between Finance and the education department.

CHAIR: Senator Lambie, a final question.

Senator LAMBIE: Isn't that Treasury's job? Why would you not have Treasury involved in that?

Senator Cormann: Because Treasury doesn't do costings on expenditure measures. That is Finance's job.

CHAIR: Senator Davey.

Senator DAVEY: I want to go back to the very beginning of JobKeeper and what it was designed for. My understanding, when you're talking about the basic test for JobKeeper, is that a business has to be able to show that its turnover has fallen around 30 per cent due to COVID-19. Is that correct?

Ms Wilkinson : A business has to show that its turnover has fallen by 30 per cent or more compared with a comparable prior period, which for many businesses, as we talked about last time, is the comparable period a year ago. But for other businesses it might be different—for example, if they weren't in existence a year ago.

Senator DAVEY: And they can choose whether that turnover test period is a monthly or a quarterly reporting period; is that correct?

Ms Wilkinson : It was designed to try and use the natural systems that businesses had. So small businesses who typically report their GST on a quarterly basis would typically use the quarterly test, and large businesses who report their GST on a monthly basis would typically use the monthly test.

Senator DAVEY: The initial life span of JobKeeper was proposed to be six months. If I, as a business owner, saw a downturn early in the health pandemic crisis but, as we were going through stages 1, 2 and 3 of the recovery, my business picked up, I would cease to show that 30 per cent decline and I would have to fill in a monthly declaration to that effect. Is it the case that my access to JobKeeper would be removed for that period?

Ms Wilkinson : You have to fill in a monthly declaration where you're declaring how many eligible employees you have. On that monthly declaration, you do have to report what your turnover was last month and what you expect your turnover to be in the month in which you're applying. But, actually, you only have to meet the turnover test at the beginning of the program. You only have to meet it once in order to be in the program and then you're eligible for support through the program.

Dr Kennedy : It's an important design feature of the program. By requiring that they meet the test only once, we remove an ongoing incentive that someone wants to try and get their turnover to get inside the program because there's a large subsidy to employees. As the second commissioner spoke about earlier, there's a lot of careful auditing and appropriateness around meeting that test. Secondly, it enhances recovery, because it means that, while a firm may not now be suffering that sort of fall over, it is getting a very significant subsidy for its workforce and it can use that subsidy to expand its own position. It was a specific design feature, and it will help accelerate the recovery. It will allow people to employ additional people. Those additional people won't be covered because they are additional to the group that was covered when the program was put in place. But it's one of the key features that distinguishes it from schemes that were designed just to support people who were stood down. This program was designed to be demand driven and not only support those who were stood down but also take the pressure off potentially the welfare system, for those who may lose their jobs. Thirdly, in the period of recovery, it was designed to accelerate recovery because it is giving firms an incentive. There is no incentive for a firm to keep their turnover down at 30 per cent. They have every incentive to take that subsidy and expand their production as best they can. It's often an appealing idea to ask people to repeatedly meet the test. It does come with a rather difficult incentive in that it encourages people to keep their turnover down to meet the test because of the level of the subsidy. What we want to do is encourage firms to expand as best they can.

Senator DAVEY: So, in industries like the hospitality industry which is slowly reopening now, the businesses that have successfully applied for and are on the JobKeeper program don't have to worry that they will lose that subsidy as their business is reopening and as people are starting to come back to restaurants. They can focus on adapting their business to the future without having that hanging over their heads.

Dr Kennedy : Without reapplying the test—certainly, the scheme was designed with that feature in mind.

Senator DAVEY: I've seen it reported that Australia was potentially on track for a recession prior to the pandemic. Was there any evidence of that? I understand that the RBA governor may have believed that we had reached a turning point. This comes back to the fact that, for any entity, including the RBA and others, it's very difficult to accurately forecast major economic indicators at this time. What's your understanding?

Dr Kennedy : Obviously, they're the government's forecasts that were outlined at MYEFO, but we were not forecasting a recession prior to COVID-19. The comments you're referring to, made by Philip Lowe, the Governor of the Reserve Bank, which he made on behalf of the board, were that the economy had reached a 'gentle turning point'—I think this was the language being used. They were the signs that we saw.

Senator DAVEY: Previous recessions and/or near recessions that we have experienced have generally been caused by global financial instability. Given that this current situation is due to a health pandemic, is there any inclination as to how different this recession and potentially our recovery may be? Could our recovery be faster than we have experienced previously?

Dr Kennedy : There can be global shocks that cause recessions. There can also be domestic policy considerations. The nineties recession was preceded by very high domestic interest rates, for example. There can be a range of factors that lead to recessions. This is novel, completely novel, because of the way the shock has commenced. Normally what happens is things begin to deteriorate; they tighten up. There's maybe been some misallocation of capital. A shock emerges. It begins to flow through the economy, and weakness is apparent. Even in the case of a rapidly moving shock like the GFC, it can take a number of quarters, as Senator Siewert said earlier, for unemployment to rise. It will often rise with a lag.

As I spoke about earlier, all these movements happened within a month, in late March and in April. That was because of the need to restrict activities, for people to stay at home if they could. So that's a shock we just have not seen. That's the first part of this shock—because people can't do things or they can't go to their workplace et cetera. The second part is just the concern around the crisis that we face, the demand, and then the flow-on consequences from your cash flow being very badly affected by the first part, the supply shock. So, because we are in some unknown country here, there is the possibility that parts of the supply side of the shock come back quite quickly. That's what we're seeing in Australia because of our response to the health crisis.

But we won't be re-establishing international tourism, it appears, soon—people won't be travelling overseas—so there will be a reallocation there. The demand side is the piece that the government are paying very close attention to. How confident are people to get back to consuming at the level they previously were and to continue to enter the housing market, and how confident are businesses to invest? Over time, this shock may begin to look more like our usual shocks, but it's started off as quite a distinct shock in its initial impact.

Senator DAVEY: Speaking of April figures, the April trade figures that were released by the ABS last Thursday saw falls in both exports and imports and quite high volatility—other than rural goods, which had a small increase of one per cent, which is reassuring. Do we expect that level of volatility to be ongoing for some time? Or do you expect that to now start to stabilise as we, particularly on the export side, go through our recovery process?

Dr Kennedy : We're quite fortunate that some of our export markets are recovering well—Japan, Korea, China, other parts of Asia—but, as I said in my opening remarks, the virus is continuing to increase its spread, particularly among developing countries. So there is a sense in which we can draw some comfort from seeing fatalities fall and cases fall in some countries, but they're rising quite dramatically in other countries. What this means for global growth is still not clear. My view, the one I gave to Senator Patrick at the previous committee, remains the same—I felt the global outlook had deteriorated somewhat while the domestic outlook had improved. With that deteriorating global outlook, we could continue to see some volatility in our export markets. Fortunately, some of our major exports are doing well. The price of iron ore, for example, is continuing to increase, but in some ways, very sadly, that's because of the very difficult circumstances in Brazil; unfortunately the disease is clearly rife there. So I expect to see this volatility. We may see the imports calm down a little. If our own consumption and business investment improve, then that pattern might be more stable, but the capacity of countries to supply those imports may remain impacted as well. I'd expect to see some settling, but there's a long way to go on the global economy.

Senator DAVEY: Thank you.

CHAIR: Thank you, Senator Davey. We will take a short break.

Proceedings suspended from 13 : 55 to 14 : 05

Senator PATRICK: I do apologise to the witnesses for being late. I managed to hit a kangaroo last night, but it wouldn't have kept me from the parliament. I'm not sure whether it was a Liberal or a Labor kangaroo, but I'm here! Dr Kennedy, there was an article in the paper, I think it was yesterday, where the Treasurer talked about 800,000 jobs being restored through stage 3. Can you tell the committee a little bit about those numbers and how you came to that? It seems quite optimistic.

Dr Kennedy : I'm happy to. I'll ask Ms Quinn to come up to the table, if you wouldn't mind.

Ms Quinn : Just recently I've been looking after the macroeconomic group, where we did the analysis on what we thought would happen once restrictions were eased over time. Essentially, we looked at the industry categories. We looked at what had been happening, what the restrictions had been doing to the economy, and then we went through various scenarios of the easing—the different stages. We looked at the impact of the restrictions but also the demand side, in terms of consumer expenditure and what's expected to come back as people go about their normal lives as part of those restrictions come off. That's the methodology that we applied, and the numbers were released by the Prime Minister at a press conference.

Senator PATRICK: Going into COVID-19, you obviously had modelling that, potentially, had some significantly worse numbers, and I appreciate that there would have been variations on how flat the curve was. Have you looked back on that modelling to do a bit of a self-analysis as to accuracy? What can that do to inform us about the accuracy of the statements that the Prime Minister and you have just reinforced?

Ms Quinn : That's right, we've done quite a few different scenarios as the state of the economy and health outcomes have evolved over time. As Dr Kennedy mentioned, at the time of the JobKeeper program, we were looking at different scenarios: one around 24 per cent impact and one around the 10 per cent range. We've looked at what's been happening in terms of government announcements, what's been happening in terms of consumer behaviour through that time, and, more recently, we've had additional data come through from the ABS Single Touch Payroll System release, where they're providing information on what's happening to businesses very close to real-time analysis, which is a new dataset. That has also provided additional information on how the economy is transpiring. In addition to that, we've got other real-time indicators through the banking system, through the labour market and through survey measures as well.

So we've got quite a lot of information, relative to what we normally have, on what's happening in real time in the economy. That has allowed us to update scenarios as we go forward, but there is still a fair bit of hypothesis testing and hypotheses that we have to make, particularly around the demand side of the economy. That goes to business confidence and consumer confidence—how they're feeling. There's a wide range of uncertainty around those estimates.

Senator PATRICK: Do you put a percentage of uncertainty around that 800,000 number?

Ms Quinn : We didn't explicitly, but there would be a range of uncertainty around that number.

Senator PATRICK: Can you find out what that is and provide that to the committee, please?

Ms Quinn : I'm happy to take it on notice.

Senator PATRICK: Thank you. I might switch to Minister Cormann. Minister, I'm very pleased to see that Minister Andrews has put out a tweet today saying, 'One thing we can all do to help our post-COVID economic recovery is to buy Australian made.'

Senator LAMBIE: If there were Australian-made things anymore!

Senator PATRICK: It's a great tweet. However, you would also be aware I wrote to you in mid-April asking you to give emphasis to clause 4.7 the Commonwealth Procurement Rules, which requires a government official to examine the economic benefit to Australia associated with the procurement. You wrote back to me and, in summary, said that you're not going to change anything; you're just going to keep an even playing field. That almost seems at odds. You're asking the Australian population to buy Australian, but in procurement you're not doing the same thing.

Senator Cormann: This is, of course, a finance portfolio question, but I'm happy to assist my good friend and valued colleague Senator Patrick, though bearing in mind—

CHAIR: You get a compliment no-one else gets—

Senator Cormann: it's not a Treasurer or an ATO question—

CHAIR: Got some deal underway there? What are you after?

Senator LAMBIE: There must be some deals going on.

Senator Cormann: I also know that Senator Patrick could just about have a PhD in the Commonwealth procurement framework. He knows it in some great detail. Furthermore, as such, Senator Patrick, you would be aware that we have made adjustments to the procurement guidelines—about the time when Senator Xenophon was still representing this parliament—and I think you may have been involved in some of that work at that time. When it comes to Commonwealth procurement using taxpayer resources, clearly there is an overriding value-for-money principle. Australia is a trading economy. We sell. We seek to sell many Australian products and services into markets, including public sector markets, all around the world. The global market is significantly bigger than our domestic market. If we were to take steps to adjust our procurement arrangements domestically, beyond a red line, then it is likely that the loss for our relevant manufacturing sector here in Australia would be higher than the potential gain. So we have to finely balance our economic interests as a trading economy, which is an exporting nation—

Senator PATRICK: No self-reliance playing into this?

Senator Cormann: That's a different issue again. In the context of the coronavirus crisis it's certainly become apparent—and the government will reflect on this as we move out of the crisis—that there are areas where we need to consider the potential need for sovereign capability and self-reliance, as you describe it. If you look at the procurement of personal protective equipment in the context of the global pandemic—with elevated global demand, elevated prices and difficulties in supply chain arrangements—there is a legitimate conversation to be had there, and legitimate consideration, and the government has already flagged we will be pursuing that. In terms of the blanket proposition around government procurement arrangements, there are thresholds there in terms of the level of procurement that needs to come from small business and in terms of some of the considerations of economic interests that need to be made. You know that they were adjusted based on representations from Centre Alliance some years ago. But there is a line. There's a line that we can't responsibly cross as a nation, because to do so would, in a net sense, expose us to potentially more harm than benefit.

Senator PATRICK: But, Minister, clause 4.7 is in the procurement rule. It is consistent with World Trade Organization and trade agreement rules.

Senator Cormann: The clause is already there; that's right.

Senator PATRICK: Yes, the clause is already there. It's just not being exercised. It requires officials to say: how many Australian jobs are associated with this tender, what is the capital investment and what is the supply chain effect? Why are you not giving prominence to that clause? I'm not asking you to change the rules—

Senator Cormann: Sorry, I thought you were asking me to go further.

Senator PATRICK: No. Just to give emphasis—

Senator Cormann: All entities across the Commonwealth have to act in a manner that is consistent with the Procurement Rules. That is a rule that is there in black and white. As they make procurements, and as they're pursuing value-for-money opportunities, every individual entity has to consider relevant thresholds, which I think are also specified in those Procurement Rules. They've got to consider things in relation to the broader economic impact. That's there in black and white, and you know why it's there.

CHAIR: Can I go back to where we started the hearing. Minister, do you know how and when the Prime Minister became aware of the $60 billion error?

Senator Cormann: Well, the Treasurer briefed both the Prime Minister and me, separately, on that evening of 21 May.

CHAIR: So you both got a call from the Treasurer?

Senator Cormann: Yes.

CHAIR: How was it explained to you?

Senator Cormann: Well, it was fundamentally explained to me in the way that I reflected in my opening remarks. There was a—

CHAIR: Were you told it was a reporting error?

Senator Cormann: I was told two things. I was told that the discovery of a reporting error, in the context of what has been explained here before, triggered a recosting of the measure and, given the significantly different circumstance we were in, the revised estimate was $70 billion instead of $130 billion, and I was told that the tax office and the Treasury would be issuing a statement the next morning.

CHAIR: The next morning? The statement went out late that afternoon.

Senator Cormann: Sorry, the next day.

CHAIR: Mr Jordan, were you told when to make that statement—when to put that statement out?

Mr Jordan : No, not specifically.

CHAIR: What does 'not specifically' mean?

Mr Jordan : I'm trying to think back. You've also got to realise that with the work patterns—people are at home; some are in offices, so it's not like—

CHAIR: It was late Friday afternoon. My question is: was that your decision to do it late Friday afternoon?

Mr Jordan : I think it was a joint decision between the deputy secretary and Jeremy Hirschhorn that was elevated to me, and I agreed to do a joint statement. I think it was the matter of it being joint that was the issue. A statement was going to be made. Was I agreeable to a joint statement? I said, 'Absolutely.'

CHAIR: Can you tell me how often you were briefing ministers on the numbers in the JobKeeper program? Was it a daily or a weekly update?

Mr Jordan : It wasn't something I was involved in.

CHAIR: But ministers were using numbers publicly, so presumably they came from somewhere?

Senator Cormann: This goes back to the costings arrangements.

CHAIR: No, it's just that—

Senator Cormann: No, it does. I'll give you a precise answer. We have regular meetings at least twice a week, sometimes more often, where there are updates provided in relation to how the various support programs are tracking. But 21 May was actually very soon after the payments were starting to go out the door; it wasn't a very long time after. So, in the ordinary course of events, after you do the initial costing for the purposes of announcement of the measure, you would not normally, ordinarily, recost prior to the next economic and fiscal update. Because of what emerged out of ATO analysis, that recosting was brought forward, but at a time when the economic parameters were materially better than what they were two months earlier.

CHAIR: My question was actually going to how often you were briefed on the numbers. Because, publicly, you were using numbers that indicated 5.5 million were enrolled, six million were enrolled, 6.2 million were enrolled—we were told that 6.3 million were enrolled. Presumably those numbers were being provided on a reasonably regular basis. That's the question I'm asking. I'm not asking you to justify it; I'm just asking how often you were getting that information.

Senator Cormann: The Treasurer would have been receiving information quasi daily—

CHAIR: Right, daily—thank you.

Senator Cormann: But, as a committee of ministers, we would have two specific days every week when we were receiving advice.

CHAIR: In relation to the JobKeeper review, do you have a date for when that will be complete? I know you've got your budget update on 23 July.

Senator Cormann: I'm not—

CHAIR: Dr Kennedy, do you have a date when that is going to be finished?

Dr Kennedy : By the end of June.

CHAIR: So it will be finished by the end of June?

Dr Kennedy : Yes.

CHAIR: Is it going to be released publicly, considering the public interest in JobKeeper and the $60 billion revision? Minister, is that review going to be released publicly?

Senator Cormann: You're asking me to make an assessment in relation to a review that we haven't even received yet. Clearly, the outcomes of the review and the decisions of government as a result of the review will be released publicly. I'll inquire with the Treasurer what his intentions are beyond that.

CHAIR: I've just got to keep going. With the $130 billion program—when it was $130 billion—there were quite a few public statements made by government ministers, particularly the Treasurer. On 12 April, on Insiders,the Treasurer said:

You see, at $130 billion, David, we had to draw the line somewhere. This is a massive call on the public purse and it is a debt that the country will pay for years to come and at six million people on the JobKeeper program, that's nearly half the Australian workforce.

So the $130 billion was used in that context as a justification to exclude casuals, uni workers and employees of dnata, for example—

Senator Cormann: No, that's wrong. That's actually not—

CHAIR: Well, no—that's the context in which that question was answered. He said, 'We had to draw the line somewhere.'

Senator Cormann: And we did. We drew the line where we felt the line was appropriately drawn. If I can go through these things in turn—

CHAIR: I don't have a question about that. I put to you that that is what was said. My question is: given that those forecasts were so wrong and that the global scope of the program, at $130 billion, was the justification to exclude, are you considering how to extend JobKeeper to the vulnerable Australians who are currently falling through the gaps?

Senator Cormann: Firstly, forecasts are only ever forecasts at a point in time based on the information at the time. So to characterise a forecast as being wrong—I disagree. No forecast is ever going to be accurate, because it is an estimate based on an imperfect situation—that was particularly the case in this circumstance—and the forecast was revised when better information became available. The next point I would make is that the $130 billion initial estimate wasn't a spending target. It was an estimate based on the design features of the program, and the design features reflect the policy choices that we've made, and that includes the policy choice that we would not be providing support to businesses that are owned by foreign governments. It does include a policy choice that we do not extend this to temporary visa holders. Under governments of both persuasions, for time immemorial, it's always been the principle that, if you're a temporary visa holder and you are in Australia on the basis of a temporary visa, you have to be able to look after your own—

Senator KENEALLY: To be fair, the chair did not ask about temporary visa holders.

Senator Cormann: She absolutely asked—

Senator KENEALLY: I might want to ask you about it, but she didn't. She asked a very pointed question—

Senator Cormann: She asked me a question about expanding it to—

Senator KENEALLY: She asked about Australians, not about temporary visa holders.

Senator Cormann: Chair!

CHAIR: Okay, thank you.

Senator Cormann: If I may. There are a range of people that Labor in the past had argued we should have included, and we decided that that wasn't appropriate. Clearly, you think that we should include employees of foreign government owned business, and we decided not to. You feel that we should include temporary visa holders. We don't believe we should. You believe that we should include casuals that have been associated with an employer for less than 12 months, and we don't believe we should.

CHAIR: The quote from the Treasurer was, 'We had to draw the line somewhere, at $130 billion.' My point is that it's not $130 billion anymore, so is that line that was drawn being reassessed in light of that? We've got uni workers, a million casuals and dnata workers—who, by a twist of time, were working for an Australian company until they were transferred to the new buyer or the new foreign entity—and those are the people that are missing out. Now, you draw the line at $130 billion. The line's changed. Are these people going to be considered? Are their needs going to be considered?

Senator Cormann: I'll say it again: the $130 billion was not a spending target; it was an expenditure estimate. We made conscious policy. We drew the line—

CHAIR: What is the line?

Senator KENEALLY: Where is the line now?

Senator Cormann: If I may answer the question—you can start interjecting every five seconds and it will be very unproductive. You're clearly running down the clock.

Senator KENEALLY: You're not answering her questions.

Senator Cormann: If you want me to answer the question, I'm happy to answer the question. I'm happy to provide an explanation for the decisions we've made. I say it again—

CHAIR: So you're not considering it.

Senator Cormann: We're not going to provide support to profitable foreign government owned businesses.

CHAIR: What about university staff and casuals?

Senator Cormann: Well, universities are able to access the scheme.

CHAIR: Australian workers in Australian jobs.

Senator Cormann: These are support arrangements that are provided on the terms and conditions that are well understood, that are deliberately chosen. There's going to be a review halfway through in which Treasury will come up with findings and make some recommendations.

CHAIR: And we'll see where the new line is.

Senator Cormann: The system is working as intended.

CHAIR: DSS last week confirmed that there are 1.64 million people on jobseeker, and I asked them whether that was tracking along their estimates, because at a previous hearing they said that they were expecting 1.7 million by the end of September, and they were at 1.64 million as of 22 May. When I asked whether this was tracking to what they had thought, they referred me to Treasury and said that this is Treasury's responsibility, so I've got a couple of questions. Can Treasury provide the committee with that month-by-month estimate on jobseeker and youth allowance that gave us the $1.7 million? Can we have that?

Senator Cormann: On that point, if that's what DSS said, they were very naughty, because jobseeker is an expenditure measure; it's not actually run out of the Treasury portfolio.

CHAIR: They said Treasury is responsible for the forecast.

Senator Cormann: The costings for expenditure measures like this are tracked by Finance, but I'm very happy to provide—

CHAIR: I wasn't asking about costings.

Senator Cormann: No, the numbers go into the costings information. I'm happy to get you the answer.

CHAIR: They told us that the numbers were being done by Treasury—that Treasury do the numbers for jobseeker, not the costing. So who does it?

Senator Cormann: Treasury estimates the unemployment forecasts. In terms of numbers of people in the jobseeker program, that goes into the Finance-DSS costing. I think you'll find the information that you're asking for and how that is tracking—the reason I know is that I review the information on how the actuals are running against estimates—comes out of Finance, working with DSS. I'm happy to provide you an answer to that question on notice.

Dr Kennedy : To be very clear, we do economic parameters, so we provide the economic forecasts, which underpin the finance costing in that case. So, when the jobseeker costing was done, it would have—Finance agreed with DSS—reflected what our forecasts were at that period for the evolution of the unemployment rate.

CHAIR: So Treasury doesn't have the information that would tell me the numbers of Australians that you'd now expect to be on jobseeker and youth allowance at the end of September.

Senator Cormann: The actuals versus estimates for this jobseeker program are tracked by Finance.

CHAIR: Treasury probably know it, but they're not going to tell us.

Dr Kennedy : We're updating our economic parameters in preparation for the economic statement in terms of how the numbers are tracking against the estimates at that time. When jobseeker was done on 22 March, the economic scenario was not quite as dark as it was on the 30th. This is how rapidly it was moving through there. In broad terms, the unemployment rate profile was probably a little worse than what we expect now. But we have not done a full update, as the minister outlined.

CHAIR: Do you have a view on how long over 1.5 million people will remain on jobseeker and youth allowance?

Dr Kennedy : No, I don't today, but I spoke earlier to Senator Siewert's question about how high the unemployment rate might remain. The government will release its own forecasts around this issue on—I spoke incorrectly earlier: it's 23 July, not 24 July.

CHAIR: Yes.

Dr Kennedy : That's where we'll outline our numbers. There's a lot of uncertainty about how this will unfold because it depends a lot on how those firms that are receiving JobKeeper are recovering and also on decisions. These are the sorts of issues we're looking at in the review: how the economy switches gear at the end of the year in terms of its recovery; and decisions the government will make, both in the run-up to July, or at its October budget.

CHAIR: So there might be a revised figure on that as part of the July update.

Dr Kennedy : I'd have to check with Finance, to be quite honest, about whether individual estimates—

Senator WATT: Without pinning you down on a number, is it likely to exceed the original estimate of 1.7 million?

Dr Kennedy : No.

CHAIR: Even knowing we're at 1.64 at the end of May.

Senator Cormann: It's fair to say that the numbers have broadly stabilised.

Senator WATT: Previously, you've told us that people are likely to be moved out of the labour force on to jobseeker. Do you still think that's unlikely to tip it over?

Dr Kennedy : No. They're probably already on jobseeker. It's the question of how they're answering the question in the labour force survey. The unemployment rate that is revealed by jobseeker looks more like a 10 per cent unemployment rate, rather than a 6.2 per cent. That switch I'm talking about is a labour force statistic.

Senator WATT: Yes, understood.

CHAIR: Who's doing the review into jobseeker and the corona supplement? Is that something that Treasury is doing? I presume there is one, as part of—

Senator Cormann: Ultimately—

CHAIR: I guess my first question is: is there a review into jobseeker and the corona supplement?

Senator Cormann: There is government consideration on how to best and most appropriately transition out of the level of temporary support that is being provided to the economy, including and in particular through JobKeeper and jobseeker. Of course, the government is considering how to most appropriately transition from current enhanced jobseeker arrangements, which include the temporary COVID supplement, back into a normal situation.

CHAIR: Is there a formal review or is it just you sitting around the table at ERC talking about it?

Dr Kennedy : Because JobKeeper and jobseeker were designed to work together—

CHAIR: Yes, that's right. So are you looking at it as part of JobKeeper?

Dr Kennedy : We're not modelling effective marginal tax rates and doing a kind of welfare style modelling. But, as the minister outlined, we're considering how those two programs—which finish at the same time—work together; and any subsequent decision. So we are looking at it from that perspective in collaboration with our colleagues at DSS. But we're not undertaking it from the point of view of a welfare-targeting perspective, we're looking at it from a macroeconomic perspective predominantly, and also how much we expect the labour force to recover, what the level of aggregate demand is. They're all relevant considerations. For example, the COVID supplement supported aggregate demand because that's a group of consumers who tend to consume strongly out of their income—

CHAIR: Potentially, it's a fair chunk of money at the end of September.

Dr Kennedy : It's a relevant consideration for the government to understand.

CHAIR: Minister, do you think those transition arrangements will feed into the 23 July update?

Senator Cormann: The intention is to provide an update on the transition arrangements in the 23 July update, which is the reason why we have delayed it by four weeks.

CHAIR: I thought you were delaying it for the JobKeeper review. I'm asking about jobseeker.

Dr Kennedy : We are looking at both. We're particularly looking at how JobKeeper is applied, but you can't look at JobKeeper and not think about jobseeker.

CHAIR: I agree. So we'll find out that in the July update, Minister?

Senator Cormann: That's right. That's the intention.

CHAIR: Senator Siewert.

Senator SIEWERT: Just following up the comments that you were making earlier about the $130 million, I heard what you said about it being an estimate, not a target. You were willing to spend $130 million on supporting Australians whose employment was at risk. Are you still prepared to spend $130 million to support Australians whose employment is at risk?

Senator Cormann: It's $130 billion—

Senator SIEWERT: Sorry, billion.

Senator Cormann: and when you say, 'willing', we made a judgement on what was likely to be required in a worst-case scenario where, as the Treasury secretary indicated, we were looking at a potential contraction in the size of the economy of in excess of 20 per cent. We're not in that environment now. It would be completely irresponsible of us, in the absence of the worst-case scenario that we were looking at, to say, 'We'll just continue to spend at the same level.' We made a judgement on appropriate fiscal support into the economy in a particular context. That context has changed, which is why the level of fiscal support through a demand driven program is also changing. It's very important to understand. When you put in place a demand driven program that can adjust depending on how severe the economic impact is going to be, you don't set yourself a fiscal target of money that you want to get out the door; you say: 'In these circumstances, this is the level of support we need to provide. If the circumstances are better, there will be less support that needs to go out.' In the end, we don't want to gratuitously expose future generations of Australians to debt levels that are any higher than what is justified in order to provide—

Senator SIEWERT: When interest rates are at a historical low, I'd question that comment. But also, we'd argue—and we do argue—that you've left people behind on the justification that you couldn't spend beyond $130 billion. Well, you haven't spent that much, and you have left people behind. So why can't you now support those people that you're leaving behind?

Senator Cormann: We made a judgement on what supports were appropriate in the circumstances, and we stand by those judgements. Given where the health threat is at and given where the economic context is at, this is now not a stage where we would consider further expansion. This is now a stage where we need to think about how we get ourselves off the temporary level of fiscal support in an appropriate way and at an appropriate time.

Senator SIEWERT: In the meantime, the casuals and the university staff that you've left behind—and we're seeing high levels of people losing their work at universities—haven't got access to support. What happens to them?

Senator Cormann: I don't accept this proposition—and I've said this in Senate question time at various times too—of having left people behind. People that lose their jobs because they are not long-term casuals or because they are in the sectors that you mentioned, like the university sector, or because they are Australians who work for foreign government owned businesses are able to access jobseeker. As you know, we have effectively doubled jobseeker, and jobseeker comes with a range of other payment entitlements.

Senator SIEWERT: Visa holders can't access jobseeker.

Senator Cormann: In relation to temporary visa holders, there's absolutely no intention to make them eligible. I say this again: temporary visa holders come to Australia on the understanding—and we're very clear on this—that they are able to support themselves while in Australia either through work or through savings. We've also given them easier access to their superannuation savings which they've accumulated while in Australia. If they cannot support themselves—and we are very explicit on this—then the expectation is that they would return to their place of origin. Our social welfare arrangements have always been residency based. We can't—

Senator SIEWERT: We haven't been in a pandemic like this before.

Senator Cormann: There was ample opportunity for temporary visa holders who are not in a position to support themselves through this period to make arrangements to return to their place of origin. You might disagree with this—

Senator SIEWERT: I do.

Senator Cormann: but that is a deliberate judgement that we have made. You're entitled to disagree with it.

Senator SIEWERT: Okay, I'll move on then.

Senator Cormann: If there is another pandemic, go to the next election promising that you will provide twice the jobseeker payments to tourists and people who are here on a temporary basis and who normally have to look after their own needs.

Senator SIEWERT: Is the government still seriously considering dropping people back onto $40 a day on jobseeker at the end of September?

Senator Cormann: The jobseeker payment, including the COVID supplement, is a temporary payment. As I indicated earlier, we are currently considering how to appropriately transition out of what is a temporary transitional payment. What future decisions may or may not be made on policy settings are really a matter for future discussion. We haven't made any relevant decisions at this point. When decisions are made, we'll be announcing them and reflecting them in future budget updates as appropriate.

Senator SIEWERT: In that, are you taking into consideration that the temporary exemption from rental payments is ending around the same time and what fiscal impact that would have if all of those people with mortgage delays and rental delays default on their payments?

Senator Cormann: We do of course take the interaction between various programs into account, and we're very mindful of the fact that for a six-month period we have put into the economy unprecedented levels of fiscal support—income support and support to employing businesses through JobKeeper. So of course we are reflecting very carefully on how we most appropriately transition out of this. But we must transition out of this, because payments at this level are not sustainable in the economy over an ongoing period.

Senator SIEWERT: Mr Jordan, I want to ask you about this process when people were filling in their forms wrongly. As I understand it, it was being done by a computer. Is that correct? Was there any human oversight or review of these forms to pick up this particular issue?

Mr Jordan : There were 900,000 applications. It was online. In the field that captured the information, the question was, 'How many eligible employees will you have?'

Senator SIEWERT: Was there any level of checking some of the forms or—

Mr Jordan : Well, there are analytics behind that field that took out bank account numbers, telephone numbers, ABNs and that sort of thing that people put there. But a purposeful decision was made to focus our efforts on stage 2 analytics around the payments—the money out—not on an estimate of the number of eligible employees. My colleague can add anything further to that if necessary. But you can see that, in such a significant build of a new system, you have to make risk based priorities. And, to be frank—and this was discussed—we didn't think there would be so many mistakes around what we thought was a pretty straightforward question. So all those analytics were to take out, as I said, those 'silly' numbers around ABNs, bank account numbers et cetera. They took those out, and then there was a manual interaction there—

Senator SIEWERT: After it.

Mr Jordan : after it—with those totally wrong numbers. If they put 1,500 there, they could have had 1,500.What they actually had was one employee, and they put 1,500.

Senator WHISH-WILSON: I've got a couple of quick questions on the government's announcement last week about their 'renovation rescue' package—or perhaps 'rescue package for wealthy renovators'. What work has Treasury done on the stimulus impact of the measures announced last week?

Ms Wilkinson : Treasury has provided advice to government in relation to the design of the HomeBuilder program, and Treasury is also responsible for the costings associated with the program.

Senator WHISH-WILSON: Has there been any modelling on its stimulatory effect on the economy—or on the sector, for example, if not the broader economy?

Ms Wilkinson : In costing the program we had to analyse what we thought the impact of the HomeBuilder program would be in terms of the number of applications to the program there would be and the amount of support that would be provided. It's fair to say that, as in lots of the different forecasting exercises that we're doing at the moment, one of the things that's quite difficult to determine is precisely how much additional activity will occur on account of these sorts of announcements. But we certainly—

Senator WHISH-WILSON: Sorry—on that point: do you accept the criticism that it's mostly going to be used by people who were already planning to renovate or to build a new home?

Ms Wilkinson : I guess this is where I was going. Certainly this grant is available to anyone who meets all of the various eligibility conditions of the program, and if there were somebody who was already intending to undertake the renovation during this period and was going to have the contract signed and be able to commence in that time, then they would be eligible for it. Some of the feedback that we were receiving was that there were lots of people who may have been planning to undertake a renovation or undertake a new build but, given the economic circumstances, were actually feeling pretty unsure about doing that. It's very hard to quantify that precisely, but I guess our sense is that—

Senator WHISH-WILSON: I'll bet it is hard to quantify precisely. Can you take on notice any qualitative or quantitative information you've got in respect of that feedback and who you got that feedback from?

Ms Wilkinson : I'd be very happy to.

Senator WHISH-WILSON: Do you also accept the criticism that it's mostly wealthy Australians who will be using this scheme? For example, you need to at least commit to a $150,000 renovation in the current economic environment.

Ms Wilkinson : The scheme is targeted. So you have to have an income as an individual of less than $125,000 to access the scheme or, for a household, an income of less than $200,000 to access the scheme. The scheme is targeted in a similar way to the ways other state based schemes or the earlier home loan deposit scheme were targeted, towards people on incomes which are relatively—well, the income test—

Senator WHISH-WILSON: Does it have an asset or a wealth test?

Ms Wilkinson : There's not a formal assets test, but, in order to qualify for the renovation component, you have to have a property which is worth less than $1.5 million.

Senator WHISH-WILSON: So there's no wealth test. We're not quite sure how many people it's going to stimulate who may not have been renovating anyway. Do you accept the criticism from columnists such as Greg Jericho that it's just giving money to people who don't need it?

Ms Wilkinson : I think what I was trying to say, in relation to a question two questions ago, was that it is hard to estimate how many people were actually going to put off renovations that they had previously planned to undertake or new builds that they'd previously planned to undertake because of the economic situation, and, to the extent that this program actually supports people to go ahead with some of those plans, then that's additional activity than would otherwise be undertaken.

Senator WHISH-WILSON: But, to that extent, we really have no idea as to who is going to be persuaded to suddenly go out and renovate now. Could I ask—

Senator Cormann: There is an expected demand cliff. Clearly, in the circumstances, people may have been thinking about building a new home or renovating, but the level of hesitation in the current climate was judged to be leading to a cliff that would have put a lot of jobs at risk around the country if it wasn't addressed with this sort of incentive. Let me say: this is not just our judgement. It's not dissimilar to a judgement, incidentally, that was made in the context of the global financial crisis, as I recall. The Labor state government in Western Australia has gone further—and their scheme is not means tested, incidentally—based on the same analysis: that there is a demand cliff which, if left unaddressed by this sort of incentive—designed to bring demand forward, or make sure that potential demand actually is executed—would harm a lot of workers across the residential construction sector.

Senator WHISH-WILSON: Minister, let's take that argument for a second, and we'll use the GST example you've provided. What's the problem with government actually stimulating public housing investment or other public good investment, like we saw in the GFC? Why are you giving subsidies to wealthy renovators in this country?

Senator Cormann: The government provides $6 billion to support Australians' housing needs. Social housing is state housing. It's housing that is managed at a state level, and indeed state governments are taking relevant measures. But the government is providing $6 billion overall, including $1.4 billion towards states' efforts in this space. That is what we're doing.

Senator WHISH-WILSON: We've got a much bigger demand than $6 billion for public housing around the country. It would create lots of jobs and keep lots of the industry in work. It seems to me that this is designed to stimulate the Liberal Party more than it is to stimulate the economy.

CHAIR: Do you have a question, Senator Whish-Wilson?

Senator Cormann: That's ridiculous.

Senator WHISH-WILSON: Treasury could perhaps take this on notice. From the last hearing we heard that the interim report that is going to be provided to the Department of the Prime Minister and Cabinet from the COVID commission and especially the task force isn't going to be accepted in its final form. Can Treasury advise on when we expect to see a finished or final report. It may be just an initial report—there may be others—but are you aware of when we're expecting to receive that?

Dr Kennedy : No. I'm happy to take it on notice, but no. I'm not quite sure which report it is, but I'll take it on notice and find out.

CHAIR: Thank you. Senator Watt.

Senator WATT: I've also got a few questions about the HomeBuilder scheme. Exactly when did work commence on that package?

Ms Wilkinson : I'll have to take the precise answer on notice, but my recollection is that it was probably six to eight weeks ago. Sorry; when you say 'work on that package', I mean advice has been provided to the Minister for Housing over the whole period of the pandemic. There have been a range of pieces of advice which have been provided over that period, but probably around six weeks ago was when we started talking about the specific details—

Senator WATT: Was further investment in social housing ever considered as part of a housing package?

Ms Wilkinson : That does go to the question of the advice that's been provided to government. There have been a number of different ways in which support could be provided to the construction sector, and one of those could be through social housing, yes.

Senator WATT: But the government has chosen not to pursue anything in the social housing space at this point in time?

Ms Wilkinson : That's correct.

Senator WATT: I'll try not to go over the ground that Senator Whish-Wilson covered, but this announcement does say that it's expected that about 27,000 grants will be provided at a total cost of around $680 million. Do you have any more precise figures than those 'about' and 'around' figures?

Ms Wilkinson : No. This is a demand driven program, so the cost of this program will depend at the end of the day on the number of applications. The 27,000 is our best estimate of the number of applications that will be likely under the program.

Senator WATT: Can you give us a little bit of detail about how you arrived at that 27,000 estimate?

Ms Wilkinson : This was analysis which was conducted within our Macroeconomic Conditions Division. We will perhaps bring in someone who is an expert at the next hearing. But it was looking at the information available on the size of new builds and the size of renovations for people in different income cohorts. So there are a range of different pieces of information that we use together to try to come up with an estimate of the cost of the package.

Senator Cormann: I refer you to the public statement of the Housing Industry Association, which estimates that this investment expected to be between $580 million and $688 million could generate over $15 billion in national economic activity and, of course, will support hundreds of thousands of jobs across Australia.

Senator WATT: Sure. I suppose I'm interested in the Treasury's figures rather than industry groups' at this point in time. Does that mean then, Ms Wilkinson, that essentially, within the income category that this grant is being provided for, you worked out roughly the number of new builds and renovations that that income group undertakes and multiplied it by the size of the grant?

Ms Wilkinson : No. We've also made an estimate of the likely increase in activity on account of the grant.

Senator WATT: But you've also factored in any possible reduction in activity because of general economic circumstances?

Ms Wilkinson : That would affect your baseline. That would affect the amount of activity on average that occurs for that income cohort in this particular area.

Senator WATT: What is the basis for estimating that about 140,000 direct jobs will be supported through the scheme?

Ms Wilkinson : I'll have to take that on notice. I have advised that around 140,000 jobs are likely to be directly supported, but I don't have any other information I can add to that. I presume it comes from employment data we have about employees in the residential construction sector, but I'll have to take the precise details on notice.

Senator WATT: I'd be interested in receiving the full modelling that came up with the 27,000 grants estimate as well as the jobs estimate. Could you also take on notice?

Ms Wilkinson : I'm very happy to take that on notice.

Senator WATT: Minister, I suppose I'm a little bit sceptical about government announcements that involve demand driven schemes, because I remember being involved in one of them earlier in the year. We found out that the $2 billion bushfire recovery fund was a notional fund. Why should we believe the Prime Minister when he says that 140,000 jobs will be created and that there will be about 27,000 grants, when his track record is that he makes announcements that don't end up being delivered?

Senator Cormann: I reject the premise of the question. I can see that you're trying to slip something in here again that is entirely inaccurate. The $2 billion bushfire recovery program was always a program designed to be rolled out over two calendar years, and, as I've indicated to you in the Senate chamber before, about $1 billion of that—half of that—is expected to be expended by the end of June. That is in the first six months of a two-year program. Having said that, as we've also discussed in relation to the JobKeeper program, when you've got demand driven programs that are designed to provide support to the economy in a very uncertain environment—any reasonable Australian out there understands that we are dealing with great levels of uncertainty. We are dealing with a challenge that is more difficult than usual to quantify. So of course estimates are—

Senator WATT: So we shouldn't really believe anything?

Senator Cormann: not 100 per cent accurate predictions of what, ultimately, will happen. They never are. Under your government, the actual outcomes inevitably were on the wrong side of—

Senator WATT: Well (a) I wasn't here and (b) it was a long time ago.

Senator Cormann: In relation to the JobKeeper program, we are now, because of a better economic outlook than anticipated, likely to expend less than initially anticipated. In relation to this program, as with any other demand driven program—

Senator WATT: Should we just let him go for the next 10 minutes?

Senator Cormann: You made a political assertion, so I'm going to provide an answer—

CHAIR: As quickly as you can, Senator Cormann, because I am trying to wrap this up by 3.30 pm.

Senator Cormann: In relation to this demand driven program, as with every demand driven program, we act on advice from officials, who give us information based on the best available information at a point in time. Obviously you can only review how it has played out in actuality after the event.

Senator WATT: Sure. But we had an announcement that we were going to have a $130 billion JobKeeper program, which turned into $70 billion. We had a $2 billion bushfire fund that has actually only spent $500 million. We had, I think, about a $4½ billion underspend in the NDIS. Why should we have any confidence that these figures are going to be delivered when those ones weren't?

Senator Cormann: Chair, this is, again, a baseless political—

Senator WATT: It's holding you to account for the announcements that you repeatedly make and then don't deliver—

Senator Cormann: I disagree.

Senator WATT: and that is a legitimate task.

Senator Cormann: Estimates are not spending targets.

Senator WATT: Clearly not. They're not even close. They're just headlines, aren't they?

Senator KENEALLY: Why do you announce them?

Senator Cormann: Because the community is interested in knowing what the expected expenditure is at a particular point in time. When the circumstances change—they are demand driven programs. On occasions you have higher demand than anticipated and you end up having to pay more. On other occasions, because of the circumstances changing, you have lower demand than anticipated and you end up spending less. Let me tell you, for time immemorial under governments of both persuasions it has always been thus. There is no scenario for any government in the world—

CHAIR: Fifty per cent less?

Senator WATT: It's just marketing.

Senator Cormann: I think we've gone through this in some great detail but I'm happy to go through it again. If you ask the same questions I'm going to give you the same answers, and you're going to complain about me being repetitive, because you're being repetitive with your questions. At the end of March the health outlook and the economic outlook were significantly worse than what it ultimately turned out to be.

Senator WATT: That doesn't excuse the NDIS underspend—

Senator Cormann: Treasury did a costing—

Senator WATT: or the bushfire underspend or the other ones.

Senator Cormann: There is no bushfire underspend. In six months we've spent half of the allocation of a two-year program. Just because you repeat assertions doesn't make them come true. Just because you sneakily try to slip in issues that are unrelated doesn't make them accurate facts. You're just pursuing a political attack because—

Senator WATT: You and your government have a record of overpromising and underdelivering.

Senator Cormann: That is because you fundamentally misunderstand what an estimate is. An estimate is not a spending target. It is not a promise. It is an explanation of what is expected to be expended in the context of a particular set of policy decisions. As demand changes, expenditure changes. If demand is higher, expenditure is higher. If demand is lower, expenditure is lower. That is how it works.

Senator WATT: Ms Wilkinson, could you take one more thing on notice for me. I'm interested to know the basis for the claim that another one million related jobs in the residential construction sector will be created from this scheme.

Ms Wilkinson : I'm happy to.

Senator WATT: Thanks. One of the other things I've noticed is that there's been some criticism of this scheme from government members, Minister. In the Townsville Bulletin today the member for Herbert, Mr Thompson, said of this scheme:

It might be okay for Sydney and Melbourne where renovations cost this much, but for Townsville, this isn't the case.

Why is it that this scheme wasn't tailored in a way that worked for regional Australia in the same way that it might work for big cities?

Senator Cormann: It was designed in the best possible way. I'm happy for Dr Kennedy or Ms Wilkinson to provide further information.

Senator WATT: You haven't got an answer, Minister?

Senator Cormann: I'm telling you we made a judgement on the appropriate design features based on consultation with the sector. To the extent that there were other considerations, I am inviting Treasury to assist.

Senator WATT: Did the government, as in ministers, consider whether a scheme of this nature would work in regional areas?

Senator Cormann: There was analysis of ABS data, as I understand it, on what a new build is. The number in relation to renovations is just under half the average cost of a new build across Australia, according to ABS data from 2018-19. That's as I understand it.

Senator WATT: Dr Kennedy or Ms Wilkinson, was there any analysis undertaken about the likely take-up rate in regional areas?

Ms Wilkinson : We wouldn't have data at a regional level in order to enable us to estimate that. But certainly it was envisaged that the $150,000 for a renovation would in large part be used by people who were rebuilding a property—someone who was making a really substantial rebuild of a property. Therefore, it was related to the cost of a new build, which, as the minister said—

Senator WATT: But you would appreciate the point that the cost of a new build in Sydney, Canberra, Brisbane and Melbourne may be significantly higher than in a regional town, whether it be in North Queensland or Tasmania? You appreciate that there would be that difference?

Ms Wilkinson : I appreciate that.

Senator WATT: And therefore a requirement that a renovation cost at least $150,000 may not be particularly useful to people in regional areas.

Ms Wilkinson : A lot of the differences in the costs across regions are the value of the land, not the value of the actual build itself.

Senator Cormann: In a regional area you would get more home for the same amount.

Senator WATT: So you're confident that this scheme as it's currently designed will have a good take-up rate in regional areas?

Senator Cormann: We believe so.

Senator WATT: What's your evidence for that?

Senator Cormann: The evidence will be—

Senator WATT: It's demand driven?

Senator Cormann: The evidence will be on the other side of the program. You can laugh, but—

Senator WATT: Evidence is something you have now!

Senator Cormann: You can think that's very funny—

Senator WATT: Evidence is something you have now, not something that may or may not be realised.

Senator Cormann: We have been dealing with a very challenging situation. We have been dealing with a once in a hundred years global health pandemic. Yes, the implications for the Australian economy were very severe. Yes, we're making decisions in an uncertain and imperfect environment. You can sneer and laugh and think it's funny, but let me tell you we're doing the best we can and we're making the best judgements we can—

Senator WATT: I just want to make sure that people all around the country are—

Senator Cormann: in order to support families around Australia through this period and in order to support jobs through this period.

Senator WATT: Well, one of your own members of parliament doesn't think it's going to work.

CHAIR: Senator Watt, do you have a final question?

Senator WATT: I would just make the point that one of your own members of parliament doesn't think this scheme is going to work in regional areas. It's not about need.

Senator Cormann: We believe it will work, but individual members of parliament are always entitled to express their views, of course. I'm just saying that you've brought a level of politics into this that I don't think is warranted in the circumstances.

Senator WATT: Ms Wilkinson, Senator Whish-Wilson asked a bit about the risk that the scheme might be used for projects that were already going to occur. Have you undertaken any modelling to calculate the number of grants that would be provided for work that was already being planned as opposed to new work?

Ms Wilkinson : When you say 'the risk', this program's been designed to provide a grant to anyone who signs a new contract after the date of announcement to undertake either a build or a renovation. So it's a design of the program that it's available to anyone who undertakes that work over this next six-month period. As part of costing the program, we had to estimate what the uptake would be, and that includes an estimate of the total amount of activity likely to take place in the sector, including that activity that perhaps may not have gone ahead other than for the fact that this is being brought forward—this has been announced—or that could possibly have been brought forward on account of that.

Senator WATT: So you would be able to provide those figures?

Ms Wilkinson : In aggregate, that's what the costing captures, and we can provide some figures on what, on average, is the amount of activity that takes place—our baseline estimate of the amount of activity that takes place for these sorts of parameters.

Senator WATT: Thanks.

CHAIR: I'm not sure if you've taken it on notice, but do you have a state-by-state breakdown for the estimated grants that are going to be provided?

Ms Wilkinson : No, we don't.

Senator PATERSON: Dr Kennedy, just returning to JobKeeper and my interest in the budget process with demand driven programs, when the government asked for Treasury's assistance in designing a demand driven program, did they go to Treasury and say, 'We've got $130 billion to spend; can you reverse engineer the criteria to make sure it adds up to $130 billion?' or did government go to Treasury and say: 'We think these are appropriate criteria for this program. Can you estimate how much this is going to cost?'

Dr Kennedy : In this case it's the latter. In this case, we developed some advice, in light of the economic circumstances, for the government on a demand driven program that, as I said earlier, would be robust to whatever economic scenario emerged. Then we advised the government and they took decisions, and we continue to iterate on that program. As part of that, we developed the costing for the program. So we were not given an envelope. We presented the government with a costing around the final version of the program. The government then took a decision in this case to proceed with the program. So it's not reverse engineering off an envelope. It is a point I've tried to make today, perhaps unsuccessfully, that often in responding to a crisis you may be thinking about an amount of fiscal response—one per cent of GDP or some proportioning. In the case of this shock—a truly novel and uncertain shock—our mindset shifted from what is proportionate in that sense to what will be robust to a wide variety of scenarios. But, as the finance minister has pointed out, it will still be capped or proportionate in the sense that it would apply. So that's how it's the latter, in short.

Senator PATERSON: Thank you. There have been public calls for the extension of the JobKeeper program beyond the legislated end date. What would the sense be in continuing an expensive program like that beyond the end date when it looks like economic activity might be returning to normal earlier than we first anticipated?

Dr Kennedy : I think, as the finance minister mentioned earlier, the government will consider in the coming months, as it is about this review, how a number of measures are finishing in light of the economic circumstances that we face, because they have been changing rapidly. We are all sitting here feeling a lot more comfortable than what we were a couple of weeks ago or a month ago. There is still a global pandemic in play. There are still many countries, as I said earlier, experiencing at the moment the full force of the pandemic. I think it would be wise to continue to track those circumstances and respond as necessary. We're also aware that a number of the repayment holidays that the banking system very successfully developed will finish. There's a lot of thought going through to how that transition takes place. The key considerations really are about how strongly the economy is recovering. If it's recovering strongly, then of course measures are more able to be withdrawn. But the government is also very mindful of a very sensible transition through that period. The finance minister may wish to elaborate, but you're right to draw attention to it. The September through December into next year transition will be an important transition. It's one I think the government will watch very closely and respond as it needs to.

Senator PATERSON: I don't think any elaboration is necessary, Minister. Just to follow up, obviously there would be a cost to taxpayers, in terms of dollars expended, if the government chose to extend beyond September, but I imagine there would be negative effects on things like labour market dynamism by tying people to businesses. Who knows what their future might be when there are other businesses that would be desperate to get them on board.

Dr Kennedy : This is the way jobseeker and JobKeeper work together. There are the incentives inside the jobseeker payment at the moment—for example, how mutual obligation has been turned off and how the income test and other tests apply. And within JobKeeper, yes, attaching a workforce that existed in March to that firm will begin to move against dynamism. It is, if you like, dulling the incentives over time. The need for support has an aggregate demand consideration, but it does need to flex and allow the economy to readjust. There will be some businesses that are going to grow and grow rapidly and that will want to take on more labour, and there are others that will be in a much more dire situation. That adjustment is already occurring but, hopefully, if the recovery continues in the way we foresee, it will be accelerating through the latter half of the year.

Senator PATERSON: Finally, I think the government has said that, including RBA measures, the total value of support is about $260 billion worth of measures.

Dr Kennedy : Yes.

Senator PATERSON: Does that include automatic stabilisers? If not, could you take on notice what the value of automatic stabilisers might be?

Dr Kennedy : It doesn't include automatic stabilisers. The costing for the COVID supplement included the costing for the supplement itself, but of course there are more people on the jobseeker payment, so there will be estimates variations, those types of automatic stabilisers. The largest automatic stabiliser, though, is not on the expense side. It is on the revenue side. The government will make its estimates public on 23 July, but we will see very substantial falls in revenue, and that's another way the economy stabilises. There will be less company tax and less income tax. Across all heads of taxation there will be significant falls.

Senator PATERSON: Thank you.

Senator DAVEY: I have a couple of questions on the house-building grants before I move on. On ABC Riverina last week there was an interview with a local builder who was expressing his gratitude for the grant, specifically because in his opinion they will go out and help small to medium enterprise builders, sole traders and the like. I've heard it said also that one of the risks, had we chosen as government—and maybe the minister wants to respond—to go down the social housing route, would have been that one large developer would win in a certain area, rather than all of these small traders. Was the program designed such that the 27,000 estimated grants that we're looking at are more likely to go to the smaller to medium businesses, to stimulate more of the economy, than just one big player?

Ms Wilkinson : I think it's fair to say that was certainly taken into account in designing the program. There is an awareness that there are more small and medium-size businesses and sole traders who operate in the residential building and renovation market.

Senator DAVEY: So, when people were talking about the construction industry sort of coming up to a cliff face, is it those smaller enterprises that face a larger risk of coming to the conclusion of their existing projects than, say, the large developers that have the capacity to build large-scale housing developments?

Ms Wilkinson : You probably want to be a little bit careful here. The level of construction investment over the last couple of years has been at very high levels, and firms of all sizes have been involved in that. Treasury had always, even pre-COVID, anticipated there would be a dip in activity this year. Again, I don't have the specific details with me and I am happy to take it on notice, but my working assumption would be that that dip in activity was expected to have been across the board rather than focused on the small end of the market. But certainly small and medium-size businesses are very well represented in construction and many of them work with developers as tradies and things.

Senator DAVEY: I have one quick question on the extension to the instant asset write-off which has just been announced. Why was this extension announced? Was it a feeling or a concern that businesses didn't have enough time to acquire or install assets before now, or is this part of a stimulus package to encourage people and businesses to invest, spend their money and get more money into the economy?

Dr Kennedy : It's both those things. The instant asset write-off would have been working to encourage people to do things they may have been thinking about but had become uncertain about, so in some ways it refills a hole that was potentially being created, and it would have been working because it was applying to the end of June or bringing forward some activity. But, in light of the disruption, the instant asset write-off was announced on 12 March, before we saw the full extent of the supply disruption even on the import side, as was raised earlier by the senator. So, in the light of both those things and the desire to see business investment strengthening through the second half of the year, the government chose to extend it to the end of the year. For obvious reasons, it's a popular measure. But the recovery in business investment will be crucial to the recovery more broadly, and I expect it will be valuable in that sense.

Senator LAMBIE: I just want to go back over the $60 billion hole. It doesn't matter which way we do our maths in my office; we just don't understand how these 1,500 businesses equate to the $60 billion hole?

Senator Cormann: I can explain that. The ATO analysis which detected the reporting error triggered a recosting, but the recosting is not reflective of the numbers of businesses that made an error on the form. It's just that when the JobKeeper program was initially costed, towards the end of March, in the weeks preceding we had a daily growth in infection rates of more than 30 per cent—on two days that I can recall. Given the economic outlook, on the back of what was happening with the coronavirus, which was rapidly evolving, with the level of uncertainty and the level of prudence that had to be built into the costings, and given the financing needs that would flow from the program as it was played out—the costing at that time was in a particular context of economic outlook. It was dealing with the worst-case scenario.

Fast forward two months to when the policy was recosted and the health situation was much, much better than was feared would be the case. The economic outlook was better than the best-case scenario that we worked with at the end of March. In the context of the health circumstance and outlook and the related economic context and outlook being materially better, the costing for the program, which is a demand driven program, was significantly less. It is the way demand driven programs work. I grant you: it is a particularly large variation, but that is a function of the very large size of the program in terms of its potential reach. If the impact on the economy had been longer and more severe, as was initially feared, the potential cost of the program would have been significantly higher and the capacity for ramp-up would have been significantly higher. As it turned out, we ended up in a better situation, so the revised cost estimate is significantly less.

Senator LAMBIE: So that was your worst-case scenario. Is that what you're saying? Your worst-case scenario was that, if all of these people took it up, that's what it was going to be?

Senator Cormann: It was based on our expectation of how long the restrictions in the economy may have had to last, given how severe and how long the spread of the virus was going to be. The spread of the virus is significantly less than what was feared. The impact on the economy is less than what was feared in the worst-case scenario, but Dr Kennedy does have more context to this.

Senator LAMBIE: Before you go—sorry, Dr Kennedy—I'm terribly concerned about this, because I have a Treasurer running around telling me it was a written mistake on paper, where people put down 1,500 businesses, and you're telling me it was rejection that you got wrong. Which one is it?

Senator Cormann: Let me very clearly separate this. There was a reporting error. I think the tax commissioner indicated 0.1 per cent of forms had relevant errors in them, so it's a very small number. Nevertheless, because the actual expenditure was not tracking consistently with what was expected, that triggered some analytical work by the ATO. That analytical work identified the reporting error. That reporting error triggered a recosting of the measure, but, by the time the measure was recosted, the environment and the outlook was significantly better than the worst-case scenario that we were working with at the end of March.

I think Australians would well understand that at the end of March it was a rapidly deteriorating situation. The spread of the virus was very, very fast—that is, above 20 per cent for quite a number of days and above 30 per cent for at least two days. In the outlook it was uncertain how long, how deep and how broad the restrictions would have to go, hence there was a prudent costing done at that time. As it turns out, we are now in a better position than even the best-case scenario that was anticipated back at the end of March. That is why the program is now expected to have less demand and, as such, less cost.

Senator LAMBIE: I'm getting to the point about being misled by the Treasurer.

Senator Cormann: You have not been misled by the Treasurer.

Senator LAMBIE: He has. He was blaming business. It was business's fault. They're putting in 1,500—

Senator Cormann: That did happen.

Senator LAMBIE: Instead of the $1,500 a fortnight that they were supposed to get, they were adding 1,500 members, and this wasn't the case at all.

Senator Cormann: That did happen. That absolutely did happen.

Senator LAMBIE: It did not happen with the whole $60 billion, so what he was telling us out there was misleading. That's what I'm getting to.

Senator Cormann: That's not true.

Senator LAMBIE: So it was not business? You should not have been blaming business at all.

Senator Cormann: There were reporting errors and there were mistakes made in the forms by a relatively small number of business applicants. But, because the actual numbers were tracking differently compared to what was anticipated, it triggered some further work by the ATO—and we've gone through that in some detail—and also a recosting of the measure, in an environment that was substantially better than the worst-case scenario that we were looking at earlier in the year. They're two things that have worked in parallel and combined to that same effect. One triggered the reassessment, and the reassessment led to the outcome.

Dr Kennedy : In some sense—if I could add—we were perhaps a little unlucky that the misreporting turned out to track, almost identically, our earlier forecast. It could have tracked higher or it could have tracked lower, but it turned out that it tracked almost exactly what we had forecast, which perhaps gave us some 'confirmation bias'. It perhaps made us too comfortable about that forecast. But, in terms of the revision, the firms were paid on one basis, but we put in that extra field so we could get an early feel for how many people were likely to get this program precisely so that we would have early information on how the program was unfolding. Frankly, given how things emerged through April, we were a little surprised at how the reported numbers were tracking against the forecast. But, once we got to see the actual payments being made and they were not tracking against those numbers—and Jeremy can elaborate—that's when, from the 13th, particularly, we began to dig in and say that maybe we didn't quite get—

Senator LAMBIE: Okay, okay! There are Australians out there who are listening and they heard what the Treasurer said. You're blaming it on small business. I have to say this: the $60 billion makes me wonder whether the ATO's compliance programs as they're set up are now up to scratch? What are you doing to check that the businesses that do receive JobKeeper are actually eligible?

Senator Cormann: That's actually a question for the tax commissioner or for the deputy commissioner.

CHAIR: Be as brief as you can be because we've got Senator Patrick—

Senator Cormann: He did previously say that no payment was made that shouldn't have been made and that everyone who should have received the payment did receive the payment.

Mr Hirschhorn : If I just quickly go back to the previous point, I would say that we were very focused on delivery and getting JobKeeper to the right people. To be blunt, we weren't that interested in the estimate. That's relevant to costings and, potentially, to revising costings. The tax office was very interested in delivery. This error in estimates, I would say, temporarily obscured the realisation that the program was at a different size from that which was originally costed. We are very focused on compliance. We were very focused first on getting the system right and getting settings in the system to make it a pro compliance system. For example, that feature where every employee—

Senator LAMBIE: I'm very concerned. My problem is that $60 billion is a massive mistake to make.

Mr Hirschhorn : But, Senator, I would say that we—

Senator LAMBIE: There's no excuse for that—not with the amount of money that you people are paid to do this.

Senator Cormann: It was accurate at a point in time in March, but the economic environment substantially changed even in the short two months from the end of March to the end of May. The health outlook—

Senator LAMBIE: Maybe it's the way it's sold, Minister. Maybe you need to be a bit more clear with the Australian people in the future. If you're not sure on something, you need to admit that.

Senator Cormann: Estimates are always estimates; we make that very clear. Estimates are estimates, and everybody was very clear that this was a very uncertain situation.

CHAIR: I'm not sure that was made entirely clear. Senator Patrick, I am trying to wrap this up.

Senator PATRICK: I do wish to table one page of the Procurement Rules.

CHAIR: Yes, I've got that.

Senator PATRICK: I didn't want to ambush the finance minister.

CHAIR: Does the committee accept this excerpt of the Procurement Rules from the Department of Finance for tabling? Thank you.

Senator PATRICK: I want to go back to clause 4.7 of the Procurement Rules, which places a requirement on officials to consider the economic benefit of the procurement to the Australian economy. I note that Minister Andrews made a comment to the Press Club where she said:

Our government changed procurement guidelines in 2017 for contracts worth over $4 million to ensure officials examine and understand the wider benefit offered by alternative providers.

She also made a comment about supporting Australian manufacturing. Is it the government's intention to pay more attention to this particular clause, such that, when there are tenders on foot, officials are directed, and required, to examine the economic benefit to Australia in association with the procurement?

Senator Cormann: Firstly, all non-Defence entities across the Commonwealth have to conduct their procurements consistent with the procurement guidelines. You've just quoted the procurement guidelines at me and you've given me another copy of the procurement guidelines—which I issue!—and I appreciate that in the context of this question. The government at our level is not involved in individual tenders. The government at our level isn't, and shouldn't be, involved in tender decisions. These are things that are done at the entity level, and—

Senator PATRICK: Respectfully, Minister, as a leader in government, you can direct officials. I put it to you that officials—

Senator Cormann: I won't direct them on procurement. We've issued guidelines which include the bit that you like!

Senator PATRICK: I understand that, but I put it to you: they're not following those guidelines.

Senator LAMBIE: No, because they're guidelines. That's why—

Senator PATRICK: They're not following those guidelines. If they were, this could make a huge difference post COVID-19. The minister is saying, 'Buy Australian.' I accept this—

Senator Cormann: This is what I thought you were asking me before: to change the guidelines. But you're taking it to another level. I believe that entities across the Commonwealth—

Senator PATRICK: They're not using it, Minister.

Senator Cormann: are conducting procurements consistent with the guidelines. If you've got specific circumstances in which you say they haven't, I'd be interested to review those.

Senator PATRICK: Okay, but I did put a range of questions on notice—

Senator Cormann: But I just make this point: we cannot take it to the next level that the line of questioning that you're pursuing seems to imply, because we are a trading nation and an exporting nation. The global market is significantly larger than the domestic market here in Australia. If we were to make decisions that take it across that line, beyond what is in the procurement guidelines—which I take it, from your line of questioning, you would like us to do—we could potentially be harming Australian exporters.

Senator PATRICK: This is not just in relation to Australians. Whether the tenderers be Japanese, German, Australian, US or Chinese, you can ask every one of them: How many jobs does your solution create in Australia? How much capital investment does your solution have in Australia? How much supply chain activity do you generate as a result of this tender? It is not discriminatory in terms of—

Senator Cormann: The rule that I've put in place is that for procurements above $4 million, or above $7.5 million for construction services, in addition to the value-for-money considerations officials are required to consider the economic benefit of the procurement to the Australian economy. This policy operates within the context of relevant national and international agreements and procurement policies to which Australia is a signatory, including free trade agreements and the Australia-New Zealand Government Procurement Agreement. The rule is there; the rule is clear. Individual departments are expected to comply with those rules in the course of their procurements, and I have no reason to believe that they—

Senator PATRICK: I put a range of questions on notice just after these rules were put in place, asking, in relation to a number of specific procurements, how each department made their assessment, and I came up with blanks. In South Australia, the government actually allocates this assessment in relation to economic benefit to South Australia to a different department than the procuring department, so it is an objective assessment. Is that something your government would consider doing post COVID?

Senator Cormann: We have issued the procurement guidelines the way they are, and I'm sure that the discussion in relation to government procurement will continue between you and me over the next few months and years.

Senator PATRICK: I put it to you that most Australians want government contracts, wherever possible, to be directed to Australian entities. I understand that that may break a rule, but, if you also consider—

Senator Cormann: You also could destroy our export markets—

Senator PATRICK: If you follow the rules as they are written, it doesn't discriminate against a different supplier—

Senator Cormann: That's why the rules are written the way they are written.

Senator PATRICK: That's exactly right, but they're not being applied. That's the problem.

Senator Cormann: I don't accept that, Senator.

Senator PATRICK: I can see that Minister Andrews has taken great note of this, and that's a really good thing. You could simply issue a directive that says, 'Apply more attention to para. 4.7 of the Commonwealth Procurement Rules,' and you could conduct some objective assessments of entities when they tender and do some compliance checking against that, but I suggest you haven't done that, Minister.

Senator Cormann: I have issued the Commonwealth Procurement Rules, but I do not get involved in individual procurements in entities across the Commonwealth—

Senator PATRICK: What about Finance's role in ensuring compliance with your directions?

Senator Cormann: I think, Senator Gallagher, I have been very accommodating of areas that are not related to Treasury and the ATO, because I have got a direct responsibility myself personally—

Senator PATRICK: It sits within the scope of the committee's inquiry, Senator.

Senator Cormann: Sure, but I'm just making the point that we're going well beyond the brief of this hearing this afternoon—

Senator PATRICK: It's in the terms of reference.

Senator Cormann: but we will continue to assess to what degree improvements can be made to those rules. Let me say this again: the opportunity for Australian businesses employing Australian workers to sell Australian products and services in the global market is significant, and the risk to that opportunity, if we were to impose restrictions on suppliers that are able to provide better value for money, could be quite severe. You've got to weigh that up. It's a matter of having the right balance, and we believe—

Senator LAMBIE: Minister, you're doubling down on that—

CHAIR: Alright, thank you, colleagues.

Senator PATRICK: Your letter to me talks about a level playing field for everyone.

Senator Whish-Wilson interjecting—

CHAIR: Thank you, Senator Patrick and Senator Whish-Wilson. We now conclude today's proceedings of the committee's inquiry into the Australian government's response to the COVID-19 pandemic. I thank witnesses who have given evidence to the committee. Witnesses are reminded that the answers to questions taken on notice are due in 10 working days. The committee now stands adjourned.

Committee adjourned at 15:35