The Australian Government is injecting $189 billion into the economy to help workers and businesses cope with the financial impact of COVID-19. Here’s what small to medium-sized businesses need to know now, and the future consequences to be aware of.
The Australian Government’s COVID-19 stimulus package includes $17.6 billion for the Government’s first economic stimulus package, $90 billion from the Reserve Bank Australia (RBA), $15 billion from the Government to deliver easier access to finance, and $66.1 billion in an economic support package, which includes:
- Support for households including casuals, sole-traders, retirees and those on income support
- Assistance for businesses to keep people in a job
- Regulatory protection and financial support for businesses to stay in business.
Prime Minister Scott Morrison said “We want to help businesses keep going as best they can and for as long as they can, or to pause instead of winding up their business. We want to ensure that when this crisis has passed Australian businesses can bounce back.”
The Government has likened the COVID-19 stimulus package to ‘building a bridge’ to get to the other side of the coronavirus.
“We know this will be temporary. That’s why all our actions are geared towards building a bridge, keeping more people in work, enhancing the safety net for those that aren’t and keeping businesses alive so they can get to the other side and stand up their workforce as quickly as possible.”
The Treasurer Josh Frydenberg said the $189 billion economic support package was the equivalent of 9.7 per cent of GDP.
Cash flow help
To help with cash flow, the Government is providing up to $100,000 to eligible small and medium-sized businesses, and not‑for-profits (including charities) that employ people, with a minimum payment of $20,000.
The payments are linked to business to staff wage tax withholdings, incentivising businesses to hold on to their staff. The payments are tax free, there will be no new forms and payments will flow automatically through the ATO.
Employers will receive a payment equal to 100 per cent of their salary and wages withheld, with the maximum payment being $50,000. The minimum payment is $10,000. The payment will be available from 28 April 2020.
Small and medium business entities with aggregated annual turnover under $50 million and that employ workers are eligible. NFPs entities, including charities, with aggregated annual turnover under $50 million and that employ workers will now also be eligible. This will support employment at a time where NFPs are facing increasing demand for services.
An additional payment is also being made from 28 July 2020. Eligible entities will receive an additional payment equal to the total of all of the Boosting Cash Flow for Employers payments received.
More information and eligibility terms can be found here.
Coronavirus SME Guarantee Scheme
The Government will establish the Coronavirus SME Guarantee Scheme which will support small and medium enterprises (SMEs) to get access to working capital to help them get them through the impact of COVID-19.
Under the Scheme, the Government will guarantee 50 per cent of new loans issued by eligible lenders to SMEs.
The Government’s support will enhance lenders’ willingness and ability to provide credit to SMEs with the Scheme able to support $40 billion of lending to SMEs.
The Scheme complements the Government’s plan to cut red-tape to allow SMEs to access credit faster. It also complements announcements made by Australian banks to support small businesses with their existing loans.
This builds on the investment the Government is making to enable smaller lenders to continue supporting Australian consumers and small businesses, through providing the Australian Office of Financial Management (AOFM) an investment capacity of $15 billion to invest in wholesale funding markets used by small authorised deposit-taking institutions (ADI) and non-ADI lenders.
It further supports the Reserve Bank of Australia’s announcement of a $90 billion term funding facility for ns ADIs, that will reduce the cost of lending, with particular incentives to lend to small and medium enterprises.
More information can be found here.
Providing temporary relief for businesses in financial distress
The Government is temporarily increasing the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.
The package also includes temporary relief for directors from any personal liability for trading while insolvent.
The Corporations Act 2001 will be amended to provide temporary and targeted relief for companies to deal with unforeseen events that arise as a result of the coronavirus.
This builds on the support for business and business investment provided in the Government’s previously announced economic support package, which included:
- increasing the instant asset write off
- backing business investment by providing accelerated depreciation deductions
- supporting apprentices and trainees
- targeted support for coronavirus-affected regions and communities.
The consequences of the COVID-19 stimulus package
The COVID-19 stimulus package aims to help Australian businesses weather the effects of the coronavirus and to improve business confidence during an uncertain time.
Roy Morgan reports that a 56 per cent majority of Australian businesses say Australia is in its first recession in nearly three decades, and over 60 per cent of businesses say that they have been affected by the virus.
Modelling by KPMG estimates that 36 million workdays could be lost via workers withdrawing from the labour force through illness and having to care for others.
KPMG Chief Economist Dr Brendan Rynne said “History shows us that influenza pandemics have a material effect on the functioning of the global economy, as individuals change their normal pattern of behaviour.
“Sickness and temporary or permanent withdrawal from the workforce, added to measures from the authorities like work and school closures, limitations on movement of travel by the public and quarantine procedures will all reduce labour productivity.KPMG Chief Economist Dr Brendan Rynne.
“Some of this lost output will be temporary in nature as workers catch-up and over-produce once the pandemic is over, but ultimately it is inevitable that some production will be permanently lost.”
Dr Rynne explained that KPMG’s modelling is not a forecast but an analysis of what would happen to the economy due to several ‘shocks’ caused by COVID-19.
“Some of the loss of economic activity in the near term due to the pandemic will be temporary as business and consumers delay investment and spending decisions.”
He explains that the Government’s stimulus package is important because “a lack of confidence and increased uncertainty have the potential to turn this temporary health crisis into a full-blown economic crisis where panic set in to financial and other markets and credit dries up.”
However, in order for the COVID-19 stimulus package measures to be successful, KPMG states:
- In order for the Government’s support for business investment to be implemented and successful, SMEs will need to invest more than $30 billion in the Australian economy over the next two years.
- If the COVID-19 pandemic turns out to be more acute and last longer than is currently anticipated then the economic impacts may be significantly greater.
Dr Rynne said “We note that the aim of the stimulus package is to bring forward spending from the future. This will mean that from around late 2021, early 2022, the government will have to address the deficit by increasing taxes or reducing other expenditures and that businesses that have brought forward investments may not be able to do as much later on.”
2020-21 Budget delay
Due to the uncertainty of the impact of COVID-19 on the Australian economy, the Government has defered the 2020-21 Budget until 6 October 2020.
Federal Finance Minister Mathias Cormann said “This uncertainty makes it extremely difficult to formulate reliable economic and fiscal estimates over the next few months.”
The Government hopes that the deferral will provide more time for the economic and fiscal impacts of the virus to be understood, nationally and globally, and will ensure that the budget can set out a “path to economic recovery”.
The Government will also lift the debt ceiling from $600 billion to $850 billion to ensure it has the capacity to deal with the ongoing economic impact of the coronavirus.