Taxpayers to foot $1.3 billion bill from ‘tidal wave’ of failed businesses

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Taxpayers will have to cover outstanding wages worth at least $1.3 billion of almost 120,000 sacked workers if the official government forecasts for bankruptcies over coming years prove accurate.

The Attorney-General's department forecasts predict ballooning claims on the Fair Entitlements Guarantee, which picks up the tab for workers' entitlements when their employer collapses without enough money to cover them, until 2024.

Government modelling revealed in Senate estimates forecasts more than 100,000 people could be put out of work when their employers go broke.Credit:Jason South

Temporary government stimulus and anti-bankruptcy changes have kept the tidal wave of redundancies at bay for now but the figures suggest a cliff when the emergency pandemic measures are withdrawn.

The figures revealed in Senate estimates under Labor questioning predict 33,444 people will be forced to call on the FEG next financial year at a cost of about $500 million, which is more than two and a half times normal demand.

In total the figures predict the scheme will cost $1.3 billion in the next three years and 119,317 people will make a claim for outstanding wages, holiday pay and long service leave by 2023-24.

Departmental officials cautioned that the figures, which were calculated in April before the government unveiled its full set of stimulus and anti-bankruptcy measures, had so far proven to be too pessimistic, with 9728 claims forecast for this point in the year but only 1406 made.

Along with JobKeeper, the government introduced temporary anti-bankruptcy laws that last until December 31 and make it harder for creditors to put companies into administration and shield directors from insolvent trading claims.

Labor Senator Murray Watt said the measures, which have produced a historically low rate of companies falling into redundancy, had delayed an inevitable rise in claims.

"There’s a tidal wave coming," Senator Watt said. "It has been held off for the moment because of the fact that it’s almost impossible for a company to go broke at the moment with the way the laws are."

Melbourne University finance professor Kevin Davis, an expert on the FEG, and restructuring association chief executive John Winter agreed there would likely be a sharp spike in claims.

"There are lots of zombie companies that will never start up again or will fall into liquidation," Professor Davis said.

Attorney-General Christian Porter said the government's policies had cushioned the impact of the pandemic on businesses and workers but added it had also given $35.3 million to the FEG to pay for up to 150 more workers to help manage any increase in claims.

"The additional staff will be brought on as necessary to meet demand and will ensure Australian workers can access entitlements quickly and accurately when eligible," Mr Porter said.

Employer groups have complained the FEG is overly generous because it covers generous union-negotiated redundancy payments while other workers, like international students, are ineligible FEG.

The government has previously recouped about a third of the money it spends on the FEG as a creditor to companies whose workers have accessed it.

In a separate estimates hearing, evidence from the Treasury suggested only 45,000 jobs would be created as a result of the government's $4 billion JobMaker hiring credit for unemployed people aged 35 and under.

Mr Frydenberg said in his budget speech the credit would "support around 450,000 jobs for young people", which is the number of people Treasury's modelling showed could access the scheme.

Only new jobs attract the subsidy, but Treasury's analysis suggests many would have been created anyway.

Treasury deputy secretary Jenny Wilkinson said the department had "conservatively" forecast the government's JobMaker hiring credit would lead to the creation of only 45,000 "genuinely additional" jobs, though it could produce as many as 135,000.

Labor's employment spokesman Brendan O'Connor called on Mr Frydenberg to explain the discrepancy and said: "This government is all about announcements, but fails on delivery."

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