The government is trying to blame the banks for flaws in its jobkeeper program, but the real problem lies closer to home. The prime minister, Scott Morrison, is reportedly “furious” with the banks for not lending businesses enough money to tide them through the month or so until the jobkeeper payments kick in. But businesses say the fundamental problem with the jobkeeper scheme is that it’s paid in arrears. In other words, businesses have to front the money to pay their workers for each month, and then claim it back through the tax office. This has left many businesses, particularly in the sectors worst hit such as hospitality, with an unbridgeable gap of tens or hundreds of thousands of dollars that they need to pay now to get into the program, but just don’t have. None of this is the fault of Australia’s banks – it is instead a fundamental flaw in the way the program was designed by Morrison and his treasurer, Josh Frydenberg. And expecting businesses that are already broke to borrow more money is also pretty rich. Banks have so far loaned $700m to businesses to help them get through the crisis – which sounds like a lot but really isn’t anywhere near enough. Guardian Australia understands about half has come from Australia’s biggest bank, the Commonwealth, and reports from businesses suggest smaller banks have struggled to get their systems up to scratch quickly. But the big problem with going to the bank is that businesses are borrowing to get behind. This is, once again, because the jobkeeper payment is made after the fact. If you borrow $100,000 to meet this month’s payroll, you will be able to pay it back next month … and have to immediately borrow the money again to meet the next month’s payroll. While banks are offering an interest deferral for six months, that just means interest payments are quietly compounding in the background, ready to mug business owners when the crisis is over and they’re expected to resume making payments. As a result, many businesses have done the sums and closed their doors rather than get further into hock. For the Liberal party, which is supposed to be the champion of small business, a failure to understand the basics of cashflow seems mind-boggling. But the Morrison government made two design decisions that made this problem inevitable. First, they decided not to pay workers directly, as the UK does – asked about this, the finance minister, Mathias Cormann, has previously claimed this “would not work” in Australia. He’s never really explained why, given that the Rudd government was able to use ATO systems to put government money in people’s bank accounts during the global financial crisis. Once the government decided to use the business tax system to make the payments, they made the second decision that ensured things would go wrong: to pay in arrears. One of the attractions of using the business tax system to make payments is that tax boffins have a very good idea of the finances of every business in Australia because of a system called single touch payroll, which requires businesses to send wages, super and tax information to the ATO at the same time as they do their regular payroll run. This means the ATO will be able to check that correct jobkeeper payments have been made. But it also means that payments could also be made in advance, and then checked against the actual payroll. Perhaps there were technical reasons why this couldn’t happen, or perhaps the risk of fraud was judged too great. But this was never explained. The jobkeeper debacle also points to a wider problem with the Morrison government’s response to the economic crisis caused by the coronavirus pandemic. Right from the start, in the long-forgotten first stimulus package, it insisted on funnelling everything through the business tax system. Back then – it was only six weeks, but it feels like a year ago – Morrison and Frydenberg reckoned they could get economic activity going by offering tax breaks for spending on capital works. But, as I said back then: “If, as seems likely, major events are cancelled, people are working from home and your restaurant is shut, why would you buy a new kitchen?” The rolling series of exponentially larger spending packages rolled out over the weeks following that first announcement at least indicate that the government realised it needed to do a lot more than offer a few tax lollies to small businesses. And Morrison is now trying to patch jobkeeper up by getting the big four banks to set up a hotline for small businesses who need an urgent loan. But the failure to design packages such as jobkeeper properly in the first place will have cost tens, if not hundreds, of thousands of jobs, throwing people on to the unemployment line. And even if businesses can now get a concessional loan to start making payments, four to six crucial weeks of income for workers who desperately need the money has been ripped away. This will inevitably ripple through the economy, although we won’t be able to see the full effect for months. The whole thing is an inexplicable policy failure, compounded by the impulse to blame an easy target – the banks – rather than own up and fix it.