Making money from JobKeeper is not just profit maximisation. It’s free-riding.

When the Federal Treasurer announced JobKeeper in March 2020, the COVID-19 pandemic was expected to wreak economic havoc across Australia.  Thousands of businesses would go bust. Millions of people would be unemployed. Billions in economic output would be lost. The Australian Government declared the (then) $130bn scheme would maintain “the connection between the employer and the employee” by making cash payments to eligible companies (those anticipating, through self-assessment, at least a 30% fall in revenue) for each employee kept on the books. Australia was bracing for economic ‘Armageddon’ and JobKeeper seemed rational and just.

Economic ‘Armageddon’ never arrived, yet billions in Jobkeeper were paid. And instead of payments going only to businesses in need, JobKeeper was paid to businesses for which coronavirus has been a boon. Shareholders and managers have profited from a scheme which the Business Council of Australia described as “fair and common-sense”, and which now appears to be neither of the two.

But in profiting from JobKeeper, have businesses done anything wrong?

Some people continue to argue that companies are obliged to maximise shareholder profit because they have a principal-agent duty to shareholders to do so (the shareholder primacy theory). But even so, there are constraints on what is allowed to be done by a company seeking to maximise profit. Nearly everyone agrees that companies should not break the law. It is not acceptable when a restaurant replaces mincemeat with sawdust in order to reduce costs. It is not permissible when a technology company increases revenue by spying on users. Beyond the law, however, most people also agree that companies have moral obligations to society.

Beyond the law, however, most people also agree that companies have moral obligations to society.

Even the individual most closely associated with ‘shareholder primacy’, Milton Friedman, argued profit-maximising companies should not only obey the law, but also must act in line with society’s ethical norms:

“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits as long as it stays within the rules of the game, which is to say, engages in free and open competition without deception or fraud…conforming to the basic rules of society, both embodied in law and those embodied in ethical custom.

As Friedman argues, these obligations should act as constraints on a company’s profit maximising motive. A company that orders an employee to drive past an accident on a remote freeway because rendering assistance doesn’t maximise profit, certainly fails our basic moral intuitions of what is acceptable.

To determine whether profitable companies ought to return their JobKeeper payments, we must determine whether companies have a moral obligation to do so. As the Federal Treasurer has made clear, companies have no legal obligation to return the funds. JobKeeper was intentionally designed by the Federal Government to impose minimal obligations on companies when receiving public funds – a position in stark contrast to the policy applying to individual citizens. It has been argued these minimal reciprocal obligations were essential to ensure the impediments to JobKeeper take-up were minimised.

If tax avoidance is “morally wrong”, as claimed by Gerry Harvey, so too is profiting from JobKeeper.

So, what of the moral obligation? Perhaps the best place to begin is by recognising that subsidies are simply a negative tax. So, if tax avoidance is “morally wrong”, as claimed by Gerry Harvey, so too is profiting from JobKeeper.

One way to argue the wrongness of tax avoidance (and by extension profiting from JobKeeper) is to consider Herbert Hart’s “principle of fairness”. The principle, in short, posits that those who benefit from the efforts of others have a moral obligation to reciprocate. The argument behind this principle is that when companies or individuals avoid tax, yet enjoy the public benefits provided by the State (the protections granted by the military; the law and order provided by the police and the judiciary; the well-educated citizenry; the functioning health-care system) they free-ride on the contributions of other taxpayers.

There are specific examples that illustrate this principle well. When James Hardie relocated its head office to Ireland, where the corporate tax rate is 12.5%, it is hard to see how this was making a fair contribution to Australia, where the majority of its shareholders reside. As Nick Kyrgios uses the Bahamas as his tax residence, where the personal tax rate is 0%, it is hard to see how this justly contributes to the nation which has not merely supported his career, but created the foundation for it. While donating to bushfire victims $200 per ace that he hit is meritorious, it does not offset tax avoidance because taxation is not charity. And in any case, making hundred-dollar donations is not equivalent to millions in avoided tax that did not fund the bushfire recovery.

Profiting from JobKeeper should be considered no different to tax avoidance.  If companies who set up off-shore trusts to minimise their tax bill are considered free-riders on Australian society, so too should companies who unfairly profit from JobKeeper. These companies place the further profits of their shareholders ahead of alternate uses of taxpayer dollars. Ahead of more ventilators, more ICU beds and more nurses. And ahead of lower Government debt which will one day need to be repaid by the next generation of Australian taxpayers – the youth who are amongst the hardest hit by COVID lockdowns.

Personally, I find Hart’s principle of fairness has substantial force, as it seems most Australians do. But judging from the fact that many companies have refused to repay the profits they have generated from JobKeeper, it is clear that not everyone agrees. These companies and their shareholders are claiming they have a right to be held to a standard different to that which applies to everyone else in Australia. They claim they have a right to free-ride.

Join the conversation

Do companies turning a profit have an obligation to pay back JobKeeper?