Jobmaker will create just 10% ‘genuinely additional’ jobs of Coalition’s total pledge, treasury says

The Coalition’s youth wage subsidy will create 45,000 “genuinely additional” jobs, just 10% of the 450,000 number boasted by Josh Frydenberg on budget night, according to treasury.

Treasury officials revealed the conservative estimated benefit of the jobmaker hiring credit on Monday, ahead of a snap inquiry likely to spark calls to legislate more safeguards to the program.

The hiring credit is the last major plank of the budget’s economic measures yet to pass parliament, after Labor waved through income tax cuts and business tax concessions.

But despite $98bn of new spending to boost the Australian economy, questions remain around whether the measures will be enough to cut short the Covid-19 recession.

On Monday the treasury secretary, Steven Kennedy, advised there is room for the federal government to spend more on fiscal stimulus if required.

The jobmaker hiring credit would pay employers $200 a week for each additional employee they hire aged 16 to 29 and $100 a week for those aged 30 to 35.

On budget night, Frydenberg said treasury “estimates that this will support around 450,000 jobs for young people”.

On Monday Jenny Wilkinson, the deputy secretary of treasury’s fiscal group, told Senate estimates it was “very hard to judge” whether businesses would have hired a new employee anyway or will have done so only because of the hiring credit.

“In costing this we’ve made a conservative assumption that about 10% of employment is genuinely additional – it would not have happened but for the hiring credit,” she said. “A significant proportion are going to be additional.”

Wilkinson added there were “very wide” margins of error on the estimate. International studies suggested wage subsidies can create “close to zero” additional jobs up to 30%, depending on design and economic context.

Labor’s shadow employment minister, Brendan O’Connor, said the evidence meant the $4bn program is set to create just 45,000 jobs “costing nearly $90,000 per job”.

He called on Frydenberg to “explain the discrepancy between his inflated jobs number claims compared to treasury’s estimates”.

“This government is all about announcements, but fails on delivery.”

The hiring credit has copped criticism from unions, Labor and the Greens who warn it does nothing to help older workers and could even see them laid off by employers hoping to gain payments.

The Greens will amend the bill to prevent employers sacking existing staff to claim the subsidies, on top of the government’s unlegislated safeguards that employers must increase their headcount and payroll to claim payments.

O’Connor has also hinted at “potential amendments” from Labor, although it will be difficult for the opposition to stand in the way of a stimulus program if the government does not take up its suggestions.

In its review of budget measures, the parliamentary library has warned jobmaker hiring credits could have “potentially distortionary displacement effects”. These include the risk of hiring younger workers at the expense of others who are ineligible and “deadweight effects”, of paying employers for workers “they would have hired anyway”.

Wilkinson defended the scheme, noting that businesses who received subsidies for jobs they would have created anyway “could make decisions to hire someone else, or to invest”.

“[The hiring credit] provides additional support in terms of what they want to do to support the economy.”

The finance minister, Mathias Cormann, said the program was targeted at young people because they would “find it harder to reconnect” to jobs and the government wanted to avoid “a new generation of long-term unemployment”.

“Older [people] have a longer track record and demonstrated employability, they’ll find it comparatively easier to find work, so they won’t need the same level of support and incentivisation,” he said.

Earlier, Kennedy told Senate estimates that although the budget had “resulted in a sharp rise in debt”, Australia’s fiscal policy “remains sustainable” because interest rates are low and debt levels still below other advanced economies.

“The current and projected debt levels would enable additional targeted and temporary fiscal support measures to be adopted should they be required,” he said.

Kennedy has consistently argued that during the recession unemployment is a bigger problem than debt. The Reserve Bank of Australia has similarly given the government the green light for further spending by noting debt levels are manageable.