The government has released a second support package to “cushion the blow” of the coronavirus on the economy, focused heavily on small and medium-sized businesses and sole traders.
Following on from the government’s move to establish a $17.5-billion stimulus package for small businesses last week, and amid increasing calls for government to expand the small-business stimulus package to include the nation’s 1.4 million sole traders struggling to make ends meet given tight social distancing measures, the Prime Minister Scott Morrison has announced an additional support package for businesses and casual workers, sole-traders, retirees and those on income support.
The new package, totalling $66.1 billion, means that $189 billion of economic support packages - the equivalent of 9.7 per cent of gross domestic product (GDP) - has been earmarked to protect the economy in the past week alone. Additional support packages are expected in the near future, too.
Chief among the new measures is a government guarantee for 50 per cent of new SME loans and a new, automatic cash payment of up to $100,000 for SMEs.
Government to guarantee 50% of new SME loans
In a move to help SMEs access working capital to help them survive the coronavirus pandemic, the Prime Minister announced on Sunday (22 March) a new Coronavirus SME Guarantee Scheme.
Under the scheme, the government will guarantee 50 per cent of new loans issued by eligible lenders to SMEs.
It aims to “enhance lenders’ willingness and ability to provide credit to SMEs” and can support up to $40 billion of lending to SMEs (with the government guaranteeing up to $20 billion).
It is hoped that the scheme will assist with cash flow and enable SMEs to pay staff, rent, and bills.
The scheme builds on the government’s previous commitments to provide the AOFM with 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 also supports the Reserve Bank of Australia’s announcement of a $90 billion term funding facility for ADIs and the banking sector’s commitment to waive SME loan repayments, among other special measures.
SMEs to receive $100,000 payment
As well as the new loan guarantee, the Prime Minister also revealed that, from 28 April 2020, the government will automatically provide tax-free payments of up to $100,000 to eligible small and medium sized businesses, as well as to not‑for-profits (including charities) that employ people.
Those with an aggregated annual turnover of less than $50 million (who also employ workers) will be eligible to access the payments, which will automatically flow through the ATO.
Employers will receive a payment equal to 100 per cent of their salary and wages withheld (up from 50 per cent), with the minimum payment being $10,000 and the maximum payment being $50,000. Mr Morrison suggested that, by linking the payments to business to staff wage tax withholdings, businesses will be incentivised to "hold on to more of their workers".
According to the government, this measure will benefit around 690,000 businesses employing around 7.8 million people, and around 30,000 NFPs (including charities).
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.
The government has also said it will be providing relief for financially distressed businesses by 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 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.
The new support package will also involve:
- temporarily expanding eligibility to income support payments and establishing a new, time-limited coronavirus supplement to be paid at a rate of $550 per fortnight for the next six months;
- allowing individuals in financial stress (as a result of COVID-19) to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21;
- providing a further $750 payment to social security and veteran income support recipients and eligible concession card holders, except for those who are receiving an income support payment that is eligible to receive the coronavirus supplement;
- reducing the deeming rates by a further 0.25 percentage points. As of 1 May 2020, the lower deeming rate will be 0.25 per cent and the upper deeming rate will be 2.25 per cent;
- temporarily reducing superannuation minimum drawdown requirements for account based pensions and similar products by 50 per cent for 2019-20 and 2020-21;
- $715 million of support for Australian airlines and airports.
'Providing hope to every Australian that we will get through this'
Speaking on Sunday (22 March), the Prime Minister Scott Morrison said the government was acting to "cushion the blow" from the coronavirus for businesses and households to help them get through to the other side of the crisis.
“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 Prime Minister said.
“Our focus is on cushioning the blow and providing hope to every Australian that we will get through this and come out the other side together.
“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.
“We know Australia’s more than three million small and medium businesses are the engine room of our economy. When they hurt, we all hurt," he said.
“The next few months are going to be a difficult journey but we all have a role to play to adapt to the changes we’re facing, to cushion the impact of what is happening and to pull together so we can bounce back when we get to the other side.”
The Treasurer, Josh Frydenberg, added: “The government is taking unprecedented action to strengthen the safety net available to Australians that are stood down or lose their jobs and increasing support for small businesses that do it tough over the next six months.
“These measures build significantly on what we have already announced. These extraordinary times demand extraordinary measures.”
Budget delayed until October
Given the rapidly changing coronavirus situation, the Treasurer has now confirmed that the budget will not go ahead as planned in May.
“Forecasting for budgets is difficult at the best of times, let alone when we’re in the middle of a global pandemic,” Mr Frydenberg said.
“It’s important that we are able to deliver a budget at a time where there is more certainty about the economic environment,” he said.
He confirmed the budget is therefore currently scheduled for the first Tuesday in October.
[Related: ASBFEO calls on PM to help sole traders]