In this recession, unlike in previous ones, governments have chosen to help pay salaries to keep workers in work rather than pay unemployment benefits when they laid off.
It means that the July unemployment rate revealed on Thursday was 7.5% instead of the 8.3% it would have been had those working zero hours but being paid by JobKeeper been counted as out of work.
This approach has kept employees and firms ready for work at a time when it is far from clear when things will improve.
Implicit in the deal was that firms in need of JobKeeper would behave as if they were in times of immense uncertainty and not pay big dividends to shareholders on the assumption that things were rosy.
It is early in the company reporting season but already there are signs that millions of dollars in increased dividends are being paid out by companies that received millions of dollars of JobKeeper.
As The Guardian’s Ben Butler puts it
what we are seeing is a transfer of millions of dollars from taxpayers – the community at large – to shareholders, some of whom are already quite rich
By supporting the wages of employees in companies at risk, the government freed up money the companies could use to pay shareholders increased dividends rather than fortify themselves against that risk.
It enabled them to shovel out of the door the money the government was shovelling in, leaving themselves no better prepared than before.
And they need to be prepared.
The last thing we need is big dividends
In April the Australian Prudential Regulation Authority wrote to banks and insurers asking them to “seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer”.
Even where they were confident they had the resources they needed, their dividends should be at a “materially reduced level”.
Its new guideline was for banks to retain at least half of their earnings when making decisions on dividends, an instruction the Commonwealth Bank followed to the letter on Wednesday paying out 49.95% of its earnings as dividends.
Earlier that day we learnt that the private sector wage index had stopped for the first time in its 27 year history.
A graph presented to Commonwealth Bank shareholders on Wednesday shows that almost all of the increase in deposits in its accounts comes from government benefits rather than wages and salaries.
- ^ 7.5% (www.abs.gov.au)
- ^ 8.3% (www.abs.gov.au)
- ^ there are signs (www.theguardian.com)
- ^ millions of dollars of JobKeeper (www.afr.com)
- ^ Australian Prudential Regulation Authority (theconversation.com)
- ^ July 29 (www.apra.gov.au)
- ^ 49.95% (www.afr.com)
- ^ highly uncertain (www.abc.net.au)
- ^ Commonwealth Bank results presentation (www.asx.com.au)
- ^ Some 10% (www.apra.gov.au)
- ^ reduced and withdrawn (theconversation.com)
- ^ trading while insolvent (treasury.gov.au)
- ^ The last thing companies should be doing right now is paying dividends (theconversation.com)
- ^ all time low (www.theaustralian.com.au)
- ^ not yet dead (www.afr.com)
- ^ tidal wave (www.theaustralian.com.au)
- ^ dividend imputation (theconversation.com)
- ^ High hurdle rates are holding back businesses, but perhaps they should be (theconversation.com)
- ^ Philip Lowe (www.rba.gov.au)
- ^ Rod Sims (www.afr.com)
Authors: Andrew Linden, Sessional Lecturer, PhD (Management) Candidate, School of Management, RMIT University