THE federal government is gearing up for a spike in company insolvencies, with the cost of its Fair Entitlements Guarantee program to pay employee redundancies of failed companies expected to triple to $480 million this financial year.
The Labor opposition says the best way to avoid company collapses is to maintain COVID stimulus spending, with Shortland MP Pat Conroy criticising another round of JobKeeper cuts, which kick in today.
The Attorney-General and Minister for Industrial Relations, Christian Porter, told the Newcastle Herald yesterday that the government had recently allocated $35.3 million to employ up to 150 staff to ensure applications to the Fair Entitlements Guarantee or FEG were done as quickly as possible.
"The FEG acts as a safety net of last resort for workers, covering unpaid entitlements such as wages and annual leave that are left outstanding when a business goes into administration and there are insufficient assets to cover final entitlements," Mr Porter said.
He said the government's "record stimulus" would "significantly cushion" the impact of the COVID-19 recession but the extra FEG funding would help manage "any increased demand" on the program.
Figures provided by the attorney-general's department showed the FEG had paid employees of failed companies $972 million in the five years to June 30 last year, and recovered $194 million of those costs.
The 2020-21 federal Budget showed the FEG costing $157 million in 2019-20, with an estimated cost of $480 million in 2020-21.
The Fair Entitlements Guarantee or FEG began in 2012 as a successor to programs begun in 2000, when the prime minister of the day, John Howard, controversially intervened in the collapse of Rutherford's National Textiles, which was chaired by his brother, Stan Howard.
The Howard government introduced the Employee Entitlements Support Scheme (EESS) in January 2000, with reports of the day indicating taxpayers covered about half of the $11 million in redundancy payments made to the 340-strong workforce.
This scheme was replaced in September 2001 by the General Employee Entitlements and Redundancy Scheme (GEERS), which was replaced by the FEG in 2015.
In a May 2017 consultation paper on "corporate misuse" of the FEG, the Coalition government acknowledged the scheme "presents a moral hazard as it enables certain employers to arrange their affairs to prevent, avoid or minimise paying their employee entitlements with the knowledge that the government (and ultimately the taxpayer) will pay some or all of the entitlements".
The paper said FEG costs had been rising because of "sharp corporate practices by select employers and parties associated with them". The Corporations Act was amended in April 2019 to address the government's concerns.
A FEG recovery program began in 2015 to offset costs.
Government figures show the program recovered $194 million of the $973 million paid out between July 2015 and June 2020, although these amounts do not include running costs.
With other returns factored in, the amount recouped rose to $345 million in five years.
Shortland MP Pat Conroy acknowledged the "moral hazard" argument with the FEG but said the important thing was to ensure that retrenched employees were not left high and dry through no fault of their own.
Mr Conroy said "every reputable analysis of recessions from the Great Depression onwards" showed that "well-designed government assistance" was cheaper in the long run than allowing companies to fail.
"And that's without considering the cost of the human misery, in the form of family breakdowns, of suicides, and other terrible consequences that flow from the pressures of unemployment," Mr Conroy said.
He said stimulus spending should continue until the economy recovered.
He said 17,000 people in his electorate were down about $4.5 million a fortnight through today's cut in JobKeeper from $1200 to $1000 and a New Year's Day reduction in the Coronavirus Supplement from $250 to $150 a fortnight.
"And that's with 13 job hunters for every vacancy," Mr Conroy said.
"I call upon the government to extend JobKeeper for those businesses that are still struggling in this recession to ensure that families in my electorate can have food on the table and a roof over their heads."
Despite year-long predictions of mass company failures, ASIC figures show fewer insolvencies in 2020 that any time since 2001.
The three months to the end of September saw 1511 insolvency appointments, compared with 3000 to 4000 or more a quarter during the global financial crisis.
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