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Two million Australians will be kicked off JobKeeper in September as the payment and the JobSeeker supplement are reduced by $300.   

Scott Morrison today announced the coronavirus wage subsidy, which currently helps 3.5million Australians, will be reduced in phases as the economy recovers from coronavirus lockdowns.

The payment will be decreased from $1,500 to $1,200-a-fortnight from 28 September.

A lower rate of $750-a-fortnight will go to people who worked less than 20 hours a week in February, before coronavirus struck.   

The two-tiered system has been brought in because one in four casuals are earning more on JobKeeper than when they worked. 

From 4 January, the payments will be reduced to $1,000-a-fortnight for full time staff and to $650-a-fortnight for those who worked less than 20 hours. 

The JobKeeper payment will be extended until March and an increased JobSeeker rate will last until December. Pictured: The Prime Minister meeting businessmen on Monday

Fewer businesses will be eligible for JobKeeper as they must continue to prove a revenue decline of 30 per cent compared to before coronavirus. 

Many will not meet this threshold because business has picked up after lockdowns ended. 

This means that the number of people on Jobkeeper is expected to decline from 3.5million now to 1.4million between October and December, Treasurer Josh Frydenberg said today.

From January 1million are expected to receive the payment. 

Australian Council of Trade Unions boss Sally McManus said she feared the lower rates would lead to mass sackings.

'Businesses will be getting less support from the government per worker so they may decide to cut numbers,' she said. 

From September 24 the JobSeeker supplement will be reduced from $550 to $250, meaning the total benefit will be worth $800-a-fortnight instead of $1,100 in total. 

That level will last until December 31 and the Prime Minister expects some level of supplement to remain beyond that. 

JobSeekers will be able to earn $300 while keeping their full benefits.

They will have to apply for four jobs a month to qualify for the benefits and must not refuse a job if offered. 

As Melbourne approaches its third week of lockdown, residents are forced to wear masks

The ongoing dole rate after March 2021 will be determined in the October federal budget.

The Prime Minister said the aim of extending the support was to make sure Australian economy emerges strongly from the crisis.

'Australia is a country that just doesn't look to survive these things. We don't go through challenges with our heads looking down, overwhelmed by the circumstances. That is not who we are,' he said.

'Who we are is innovative adaptive people, supporting each other, reaching out to each other, drawing us all through, not for survival, but to be on the other side in the position where we can emerge strongly.'  

Mr Frydenberg said support will continue for those in need when eligibility across both payments are tightened.

'JobKeeper has been an economic lifeline to millions of Australians and that lifeline will be extended for those businesses that need it most,' he said.

Labor leader Anthony Albanese said he was concerned that JobKeeper's flat rate led to 875,000 workers being paid more than before the crisis.

'It's good that the government has finally woken up to some of the waste in this scheme,' he told ABC radio.

Greens leader Adam Bandt said Labor had taken the 'wrong approach' and 'should be pushing the Liberal Party to keep a living income, not attacking low income earners.' 

The federal opposition wants the dole set higher than the old rate but not above the age pension, which is $860 a fortnight.

A review of the support payments by the Treasury suggested the enhanced JobSeeker payment may be affecting incentives to work.

Mr Albanese rejected the idea the higher rate could encourage people to avoid employment, saying there were 13 people out of work for every job vacancy.

'I don't think this is the time for the government to essentially be running out the 'dole bludger' argument which is so dear to the heart of conservative governments,' he said. 

Victoria has recorded 375 new cases on Tuesday as New South Wales teeters on the brink of a major outbreak that may lead to tighter restrictions

There is speculation that pubs and restaurants in NSW could be forced to shut their doors again if the state's coronavirus infections continue to rise

Cutting back both support measures will ease pressure on the federal budget.

The JobKeeper extension until March 28 will cost $16billion, taking the total expected cost to $86billion. 

The new arrangements for the Coronavirus Supplement are expected to cost an additional $3.8 billion. 

The government will update the state of the nation's books on Thursday, revealing a budget deficit in the order of $200 billion.

As of July 15, JobKeeper payments totalled $29.8 billion.

Under the existing scheme, companies turning over less than $1 billion with a 30 per cent fall in revenue are eligible.

Firms turning over more than $1 billion must show a 50 per cent decline.

Businesses that met the revenue test at any stage during the pandemic qualified for the payments for each employee. 

The JobKeeper scheme had disproportionately benefited teenagers, with their wages soaring by an average of 16.8 per cent in the seven weeks to early May.

Every other age group saw their pay levels plunge by 5.4 per cent.

Outgoing Finance Minister Mathias Cormann said a pared back JobKeeper would address those kind of flaws. 

'What the review also found was that there were a number of features of JobKeeper that created adverse incentives which may become more pronounced over time as the economy recovers,' he said.

'This formed part of our considerations as we looked at the next phase of the JobKeeper program.'

Treasury advisers were worried about JobKeeper propping up firms that would otherwise have closed. 

Treasurer Josh Frydenberg has also hinted the wage subsidy program will run until March 2021, with his home city of Melbourne in lockdown. Pictured is the Bourke Street Mall

JobKeeper is being extended beyond the end of September because the government is worried about businesses potentially collapsing if it's withdrawn too soon. Pictured is a barista in Sydney on July 1

'It 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,' the Treasury review said.

The review, finalised at the end of June, found JobKeeper had helped businesses that had suffered an average turnover decline of 37 per cent in April 2020, compared with the same month in 2019, and staved off closures. 

As of May more than 1.6million Australians were receiving JobSeeker, which combines the old Newstart unemployment benefit along with sickness and bereavement payments.

Last month close to one million people, or 992,300 Australians, were officially unemployed for the first time ever, as the jobless rate rose to 7.4 per cent, the highest level since November 1998. 

The JobKeeper package, costed at $70billion, was announced on March 30, a week after JobSeeker was effectively doubled with a temporary $550 a fortnight coronavirus supplement.

The doubling of the dole ends on September 24, which could see JobSeeker either revert back to its original $565.70 figure, from $1,115.70, or be permanently raised from its base rate.

Treasury said any dole increase would have to be balanced with encouraging the unemployed to get a job. 

'In addition, the introduction of enhanced income support under JobSeeker may also be affecting incentives to work,' it said.

Existing JobKeeper and JobSeeker payments are continuing until the end of September, as legislated, and both schemes are being extended.

The Melbourne lockdowns, expected to last six weeks, are estimated to be costing the Victorian economy $1billion a week, in a city that makes up a quarter of Australia's economic activity. 

Treasury is releasing a full economic statement on Thursday as a prelude to the October budget, delayed because of coronavirus. 

The government is also making an announcement about the doubling of JobSeeker unemployment benefits, which end on September 24. Pictured is a Centrelink queue at Darlinghurst in Sydney's inner east

Victoria on Tuesday recorded 374 new cases of coronavirus and three elderly women died as New South Wales teeters on the brink of a major outbreak that may lead to tighter restrictions. 

Victoria's total is far higher than Monday's figure of 275 and is the state's second-biggest after 428 on Friday. 

The women who died were in their 100s, 90s and 80s. 

NSW recorded 13 new cases, down from Monday's total of 20. 

Victoria on Tuesday recorded 374 new cases of coronavirus and three elderly women died