A report by think tank Per Capita estimates the injection of service fees to the sector to reach $210m

This article is more than 4 months old

This article is more than 4 months old

Australia’s privately run employment service agencies are set for a massive windfall as the Covid-19 pandemic pushes hundreds of thousands out of work, with some experts putting the additional cost to the taxpayer at more than $200m.

The estimate, contained in a report by Per Capita released on Tuesday, has prompted the progressive think tank to call for a review of the current system, which is expected to come under unprecedented strain amid soaring unemployment.

Under the Jobactive system, about 40 privately run employment agencies and not-for-profits receive fees for each jobseeker placed on their books, and additional incentive payments when people are placed into a job.

Based on a projection of an extra 700,000 unemployed people being assigned to providers during the pandemic, Per Capita found the “employment services sector can expect to receive an estimated injection of service fees in the amount of approximately $210m”.

But the total haul is likely to be much higher, with authors Simone Casey and Abigail Lewis noting that providers also receive up to $1,550 for each person they place into work in what will be a further “problematic drain on expenditure”.

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Payments for job placements are set on a scale based on the jobseeker’s level of disadvantage, but the authors argue providers would reap significant sums from many newly unemployed people who would would require only “negligible support”.

Per Capita’s executive director, Emma Dawson, told Guardian Australia: “With the unemployment rate predicted to double or even triple in coming months, hundreds of thousands of people who have never had to use our privatised employment services before are about to be confronted with just how broken the system is.”

“The government can’t continue patching up a model that is fundamentally flawed. If we are going to recover from this economic collapse, we need a system that actually helps people get work and stops focusing on punishing them for not being in jobs that don’t exist.”

The Coalition is likely to balk at calls for another review after it launched a trial of a new digitally focused system following a critical government-commissioned report released in late 2018.

Facing calls to overhaul the system from business and welfare groups, the government opted to extend the existing Jobactive contracts until 2022, while it piloted a new, streamlined program that it says will give providers more time to focus on disadvantaged jobseekers.

But Per Capita, which criticised Jobactive in a report released in 2018, said the new model was “conceived in economic conditions that are vastly different from those that will follow the Covid-19 economic shock”.

It said the new model, as well as Jobactive, were “hamstrung by a dependency on job outcome payments” which led to under-investment on more needy jobseekers.

The current Jobactive system costs about $1.3bn a year in what has been described as the second largest area of government procurement, after defence.

But employment service providers have argued Australia spends about 0.23% of GDP on employment services, well below the OECD average of 0.53%.

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An investigation into the Jobactive system by the Guardian last year revealed that less than 20% of the nearly 2 million Jobactive participants in the life of the program had been placed into a job for more than six months.

Meanwhile, 120,000 jobseekers had three or more “placements” recorded, which triggers a payment to an employment service agency each time, in what critics have labelled a punitive system.

The result has been that while the job-ready are placed into work, and often churned through several positions, the average period a person can expect to spend on the dole has ballooned because more disadvantaged jobseekers remain locked out of the labour market.

Last week, the government said 587,686 people had been granted the jobseeker payment following an unprecedented deluge of claims and most of those people could be expected to be placed into the Jobactive program.

It already boasted 750,000 participants at 31 March, according to government figures. A damning Senate inquiry report released last year noted the average jobseeker caseload per consultant was 148.

The government last month announced a $41.7m boost to funding for a specialist jobs scheme for workers over 45 known as the Career Transition Assistance program.