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JobKeeper buck stops with Treasury boss

A former nurse, Kennedy was appointed by Treasurer Josh Frydenberg to take the helm of Australia’s powerful department of Treasury late last year.

Despite training and working as a psychiatric nurse, Kennedy decided to join the public service as a cadet at the Australian Bureau of Statistics in 1992.

He was recruited to Treasury in the early 2000s after completing a PhD in labour market economics. His doctoral thesis examined the link between unemployment and poor mental health.

As a young Treasury bureaucrat he was seconded to the Prime Ministerial offices of both Kevin Rudd and Julia Gillard. As an economic advisor to Rudd, he helped put together the government’s response to the global financial crisis in 2008.

Under Gillard, he served as cabinet director before moving to the then department of climate change, where he headed the secretariat of the Garnaut Climate Change Review update in 2011. He was later awarded a Public Service Medal for outstanding work in the area of climate change policy.

He then worked as deputy secretary of various departments, including environment and Prime Minister and Cabinet, before his first secretarial appointment as head of the Department of Infrastructure in 2017.

What does he do?

Kennedy was serving as the secretary to the Department of Infrastructure when he was plucked by Frydenberg to become the second most powerful bureaucrat in Australia – second only to Phil Gaetjens, Kennedy’s predecessor at Treasury, who now heads the department of Prime Minister and Cabinet.

Treasury is the government’s key advisor on all things economic. It is responsible for advising the government on key economic policies and for putting together the economic forecasts on which the budget is framed. It is also responsible for modelling the cost of various budget measures.

It is required by legislation to do this on the eve of budgets and elections, but is also available at any time of the year to inform the government on the potential cost of its policies.

Balancing the books: Treasury boss Steven Kennedy.

Balancing the books: Treasury boss Steven Kennedy.Credit:Joe Benke

Kennedy is also a member, by virtue of his role, of the board of Australia’s Reserve Bank and attends its monthly meetings at which the level of interest rates are decided.

What did he do this week?

Kennedy has not said anything publicly this week.

But on Friday prior, his department released a joint statement with the Australian Tax Office updating Treasury’s estimates for the likely uptake and cost of the government’s JobKeeper program.

Having initially costed the policy at $130 billion, Treasury now costs the policy at just $70 billion. Instead of 6 million recipients as initially forecast, just 3.5 million Australians are expected to get the payment.

It’s the biggest policy costing discrepancy in Australian history.

Treasury’s joint statement with the ATO blames errors in the survey design, but also concedes its initial costings were based on a far greater level of economic shutdown than actually occurred.

As head of the department which produced the costing, Kennedy is ultimately responsible for the discrepancy.

Why is this important?

In one sense, it’s not. The government’s JobKeeper policy, as announced, was to provide a wage subsidy to all businesses who experienced revenue downturns of 30 per cent for small business and 50 per cent for small business.

By and large, it has done that.

It’s just that fewer businesses have needed it than Treasury first thought. The JobKeeper program was announced at the peak of new COVID-19 infections in late March. Treasury produced its costings expecting much greater industry shutdowns including all construction, mining and manufacturing. These did not eventuate.

In evidence he gave to the Senate Select Committee examining the government’s response to COVID-19 last month, Kennedy flagged all policies would need to be “continually looked at and refined”.

“They are by no means perfect,” he warned. “They involve trade-offs against the administration of the arrangement and the speed at which they need to hit the ground.”

But public faith in Treasury’s ability to properly cost government policies is key.

No details of Treasury’s initial costing have yet been publicly released. In a speech last year, Kennedy himself noted the importance of public trust in public servants.

“The community is increasingly sceptical and we have to address this scepticism to be effective.”

It is likely Kennedy will be called upon by the Senate Committee to provide a full account of his department’s $60 billion discrepancy.

Deloitte Access Economics director Chris Richardson concludes the underspend is actually good news. “It’s a sign that the economy is actually much healthier than we thought.”

Given the tight time frames and heightened uncertainty, Richardson says Treasury did a good job. “Even with this mistake, I give them an A+.”

Economist Saul Eslake admits he was always “sceptical” of the 6 million figure but concludes Treasury was right to err on the side of caution.

“At least the error was the right way around,” says Eslake. “Imagine the mess we would be in now if they had underestimated the cost by $60 billion instead of overestimating it.”

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