Treasury warned the government that its two-tiered JobKeeper payment would be complicated and potentially unfair, especially given the summer bushfires, its review released on Tuesday reveals.
Despite the warning, the Morrison government has pushed ahead with two payments - a lower one for part-timers and casuals working fewer than 20 hours a week.
At the moment, everyone on JobKeeper receives $750 a week as a government wage subsidy.
From October, the amount will change. People will be paid based on how many hours they worked in February this year before the pandemic.
People who worked fewer than 20 hours a week in February will have their payment cut by more than half from October - to $325 a week, assuming their employer is still eligible. People who worked 20 hours a week or more in February would receive $600 a week.
Treasury warned the government that basing the payment on pre-pandemic hours worked - or on current hours worked - raised significant issues, forcing employers to use historical payroll data.
"Besides being a complex undertaking for some employers, there would also be many individual instances where, say, using February hours would be unfair for employees whose hours were atypical for that period - such as those whose hours were lower due to the effect of bushfires," the Treasury review released on Tuesday said.
"Employees who have increased hours since March 1 might also be disadvantaged."
Treasury points out that the tax office doesn't record hours worked, also making it difficult to enforce a system based on hours worked.
"Existing ATO systems do not capture hours worked, meaning that verifying such reporting and any compliance activity would require intensive audit work," it said.
"On balance, careful consideration would need to be given to making any changes to payment amounts, and sufficient time would need to be provided to employers and the ATO to implement such changes. It is not clear that the net benefit of these changes would be positive for such a time-limited program."
Treasury also pointed out that a lower rate of JobKeeper would bring the wage subsidy close to the JobSeeker unemployment benefit, adding to the disincentive to work. And it pointed out that people receiving a lower JobKeeper payment would become eligible to also receive JobSeeker - since someone can earn up to $300 a fortnight and still get the unemployment benefit.
While Treasury was not enthusiastic about a two-tier payment, it said the case for extending the JobKeeper payment beyond September was strong, especially coupled with a new test requiring businesses to show their turnover was still down.
"The risk of extending JobKeeper beyond September, even under more targeted arrangements, is that it continues support for businesses whose longer-term viability is not assured, while locking in adverse design elements," it said.
"On the other hand, an extension provides a smooth transition for these businesses, giving them more breathing space to reach the point where they might survive without ongoing support.
"Treasury's overall assessment is that an extension to JobKeeper is needed, coupled with a fresh eligibility test."