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Maccas, Woolworths, and Coles are the biggest Budget winners — their workers not so much

Business Insider Australia logo Business Insider Australia 7/10/2020 David Marin-Guzman, AFR
logo: The government's wage subsidies will benefit big companies' payrolls more than it will their workforces. (Budrul Chukrut, SOPA Images, LightRocket via Getty Images) The government's wage subsidies will benefit big companies' payrolls more than it will their workforces. (Budrul Chukrut, SOPA Images, LightRocket via Getty Images)

Supermarket and fast-food giants could be the biggest beneficiaries of the government's new wage subsidy for young people, with the hiring credits potentially reducing their wage liabilities for teenage workers by two-thirds.

Citi analysis released on Tuesday said the JobMaker hiring scheme detailed in the budget was likely to assist high-performing retailers such as Coles and Woolworths, while the Retail and Fast Food Workers Union (RAFFWU) has pointed to McDonald's as a major beneficiary because of its 100,000-strong workforce, largely aged under 21.

The flat $200-a-week subsidy to encourage the hiring of workers aged 16-29would mean a retail and fast-food business recruiting an 18-year-old on the minimum 20 hours a week could effectively reduce their wage bill from $15 an hour to just $5 an hour.

Citi analyst Craig Woolford said businesses that had a relatively high staff turnover, younger employees and were in a position to expand their workforce were set to benefit from the subsidy and supermarkets were going to be "best placed".

"Woolworths and Coles are likely to be the major beneficiaries given their employee costs, churn and ability to add staff following strong sales and earnings," he said.

RAFFWU secretary Josh Cullinan said McDonald's would "love" the subsidy and it could see the franchisor shift its reliance on 14-16 year-olds to the 17-25 cohort, which was in a better position to work the scheme's minimum 20 hours.

Hiring an 18-year-old would provide McDonald's a "very substantial" benefit, he said, as the subsidy would effectively fund $10, or two-thirds, of their $15 an hour junior rate.

A possible 'windfall'

More than 50 per cent of McDonald's 105,000 workers are under 18 and about 80 per cent are under 21.

With each store staffing an average of 100 workers, Mr Cullinan said "you can imagine the benefit".

"If they only get 50 people, or even only 20 people, the franchisee has got a windfall of $4000 a week or $200,000 a year," he said.

However, the scheme's eligibility rules could restrict any windfall, including conditions that the recruit was on JobSeeker or the Youth Allowance and that the business must have increased its total headcount and payroll from September 30 over a three-month period.

Citi's Mr Woolford said a business still had to be in a position to expand its workforce to benefit and it was unclear how much that would apply to fast-food businesses such as McDonald's.

"Supermarkets have benefited quite a lot from demand for eating at home," he said.

"A small portion of fast-food businesses have done well but a lot of them have not done well because people in certain states at certain points in time have not been able to eat out."

McDonald's has plans to open about 25 new stores and is considering increasing employment before the summer months.

Employment opportunities

A spokesman said it was "taking the appropriate time to consider the implications of the budget".

“We will continue to grow our business and open new restaurants in the year ahead. Each new restaurant creates approximately 100-120 new employment opportunities, consisting of full-time, part-time and casual employees.”

Coles and Woolworths employed 20,000 new workers in the early months of the pandemic in response to a surge in demand and are now in the middle of their pre-Christmas hiring.

Woolworths also plans to open 10-20 new supermarkets and 15-30 Metro stores over the next year, which would require thousands of new staff.

However, neither business is understood to be planning a major recruitment drive.

Indeed, Asia-Pacific economist Callam Pickering said it was a good thing to see the government address the high rate of youth unemployment, which he said had been a problem since the global financial crisis and was exacerbated by the pandemic.

"It absolutely will encourage businesses to employ more young people. The issue is it could also distort and create some perverse behaviour from businesses.

"For example, why would a business hire a full-time younger worker when they can hire two casual workers and double their subsidy?"

Businesses such as supermarkets that had done well during the crisis would also be hiring younger people regardless of the subsidy.

"They don't need the extra $200 to encourage them to hire. They're largely going to be pocketing this wage subsidy and it could end up as higher profitability, greater dividends or bigger bonuses for high-level staff and executives."

This story first appeared in The Australian Financial Review. Read it here or follow the Financial Review on Facebook.

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