People that remain on JobKeeper will lose at least $150 a week - more for part-timers, after the government announced a two-tier JobKeeper payment from October.
At the same time, the government is cutting the unemployment benefit by $150 a week and will require people on the benefit to apply for four jobs a month and meet other tests to get the money.
"JobSeeker and JobKeeper are not do-nothing payments, Prime Minister Scott Morrison said. "JobSeeker and JobKeeper are payments that support people's incomes but also do not and are not designed to prevent them from going out and seeking work to improve their circumstances."
The Job Keeper wage subsidy will be cut from October and again from January.
From October, the payment for people working 20 or more hours a week will be cut from $750 a week to $600 a week. For people working fewer than 20 hours, the payment will be cut to $375 a week ($750 a fortnight).
From January, the payment is set to drop again, to $500 a week ($1000 a fortnight) for people working more than 20 hours, and to $325 ($650 a fortnight) for people working less.
The 20 hours' work applies to January 2020, before the virus hit, in a measure likely to complicate the system.
Prime Minister Scott Morrison announced the changes on Tuesday.
The new rates start at the end of September and are set for six months, till the end of March.
The changes would mean about 2.1 million workers would lose access to the wage subsidy from October and another 400,000 off the scheme from January, the government said. Currently 3.5 million workers are on the subsidy in 960,000 businesses.
Businesses will also have to show a reduced turnover each quarter - meeting the test for the October to December quarter, and again for January to March - to keep getting the JobKeeper subsidy.
JobSeeker will been cut by $300 a fortnight and the extra coronavirus supplement will end at the end of the year. Mr Morrison said more announcements would be made soon on JobSeeker and it might continue at some level after December. The government is also bringing back its mutual obligation requirements for people to look for work and assets and other tests to qualify.
The government effectively doubled the JobSeeker unemployment supplement to $1120 a fortnight when the pandemic hit, by adding a $550 coronavirus supplement. News that the supplement will be stripped back to $250 will disappoint people calling for a permanent increase to the payment.
Treasurer Josh Frydenberg, who is from Melbourne, had to join the announcement at Parliament House under special conditions imposed by ACT health authorities.
Mr Morrison said the announcements were not "set and forget" but would change as the situation changed.
"These are very complex issues, there is no one thing that can remove from us this heavy burden that is on the country at the moment," he said. "All things have to be considered."
Mr Frydenberg is expected to deliver an economic statement on Thursday, July 23, and had hoped it would be all about business growth, with the pandemic under control. Under a three-step plan adopted by the national cabinet in May, the economy was to be all but fully open again by the end of July.
But the Melbourne coronavirus outbreak forced a revision of the plans. The government has instead been forced to extend JobKeeper and other supports for businesses that can't reopen fully or reopen at all.
Mr Frydenberg and Finance Minister Mathias Cormann released Treasury's three-month review of the JobKeeper wage subsidy on Tuesday.
Three and a half million workers in 960,000 businesses are receiving the subsidy.
The review found that that just under 900,000 casuals and part-timers are receiving an income boost from the flat $1500-a-fortnight payment - earning much more than they were before JobKeeper started at the beginning of April.
Those workers have been receiving an average pay boost of $550 a fortnight, thanks to JobKeeper.
Treasury also reported that JobKeeper, while it had prevented widespread business closures and job losses, was also skewing incentives to work. Those "adverse incentives" were likely to become more pronounced over time and hold back recovery as the economy recovers, Treasury warned.
It cited claims from industry that workers were refusing extra shifts or even refusing to work at all while they are on the $1500-a-fortnight flat payment - while adding that "no quantitative evidence has been presented on either of these matters".
JobKeeper "distorts wage relativities between lower and higher paid jobs, it dampens incentives to work, it hampers labour mobility and the reallocation of workers to more productive roles, and it keeps businesses afloat that would not be viable without ongoing support", Treasury said.
It also pointed to the problems with a high JobSeeker unemployment benefit, which, at $1120 a fortnight, effectively forming a new "reservation wage" or wage floor.
"An important part of the process of recovery from recession is to let economic resources flow to their most productive use," Treasury said.
"In the labour market this occurs through people switching jobs, moving from businesses that are struggling to those that are growing. JobKeeper can hamper this process."
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Mr Frydenberg said the extension to JobKeeper would not save every business, but by tapering the payment and extending the scheme, "we give them the best chance of remaining viable".
Between February and May, more than two million people lost their jobs or lost hours.
Mr Morrison said JobKeeper was doing its job and would continue doing its job.
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