Summary – While China’s economy bore the brunt of the initial economic impact, the COVID-19 outbreak is bringing both direct and indirect complications for economies around the world. With China’s key role in the supply chain and manufacturing, in combination with lockdowns restricting movement, trade and business – fiscal authorities are implementing new measures to protect and stimulate their respective economies.
The Australian Government has announced a series of new regulatory, legislative and administrative changes that strengthen the country’s position moving through the crisis. The International Monetary Fund and the Organisation for Economic Co-operation and Development forecast Australia’s growth outpacing many comparable countries, including France, Canada, Japan, Germany, and the UK – all without endangering Australia’s debt sustainability.
Australia’s Response
The Australian Federal Government has, in a series of announcements, revealed a consolidated package of $320 billion AUD or $200 billion USD[1] support – equivalent to 16.4% of the country’s nominal GDP. They have made a clear stance that Australia is prepared to protect its national interest and respond to the broad and prolonged impact of the outbreak.
The stimulus measures can be considered in three separate categories, each with an intended purpose:
- support businesses;
- support the flow of credit; and
- support individuals and households.
The measures come with consideration of varying factors, including helping with the management of short-term cash flow, assist severely affected communities and regions, to prop up individuals and households dealing with sudden loss of employment, maintaining employees’ connections with business, and to ensure the continued flow of credit.
The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 and Coronavirus Economic Response Package Omnibus (Measures No. 2) were passed by parliament on 8 April 2020. More legislation is expected to come as Australian authorities continue to study the broader prolonged impacts of COVID-19.
State and local governments within Australia have also announced a wide range of measures in addition to those announced by the Federal Government.
[1] Based on AUD-USD exchange rate 21 April 2020
Support for Businesses
JobKeeper Subsidy
The Australian government has committed $130 billion in ongoing support to business through the JobKeeper subsidy. The payment is available to businesses that are suffering a reduction in turnover to keep Australians employed during the outbreak. The JobKeeper subsidy is a gross fortnightly payment of $1,500 for each eligible employee for a 6-month period. The full $1,500 payment is to be paid to each eligible employee, either as a partial subsidy if their wage is greater than $1,500, or as a full subsidy if their wage was previously less than $1,500. The gross payment will be taxed at normal rates, although employers are not obliged to make additional superannuation contributions.
The scheme includes sole traders as well as businesses and not-for-profits (NFP).
Boosting Cash Flow for Employers
Small and medium businesses, as well as NFP are eligible for cashflow boosts to further assist in retaining employees. Tax-free cash flow boosts of $20,000 to $100,000 will be delivered to eligible businesses and organisations with aggregated annual turnover under $50 million. The Government has specifically acknowledged the increasing demand for NFP services during this crisis.
In a series of two payments, each payment will be equivalent to the business’ withheld salary and wages, with a minimum of $10,000 and maximum of $50,000. The first cashflow boost is set to be available between March and July 2020; the second boost will be made to businesses who received the first and will be of an equal sum, to be paid between June to September 2020. By splitting the support into two equal payments, the intention is to provide continued cash flow support over a longer period – increasing confidence and assisting businesses to maintain their operations.
Temporary Relief for Financially Distressed Businesses
Recognising the need for a safety net to allow businesses to resume operation post-crisis, this measure provides legislative support to financially distressed businesses. The temporary changes include reducing thresholds for creditors to issue statutory demands and initiate bankruptcy proceedings, increasing time available to respond to statutory demands, relieving directors from personal liability for trading while insolvent, and providing flexibility in the Corporations Act 2001 when dealing with unforeseen circumstances stemming from the COVID-19 crisis.
The Australian Taxation Office is willing to tailor solutions for directors and owners currently suffering. These may include reductions in payments or deferrals and withholding enforcement actions.
Changes to Asset Write-Off and Depreciation Deductions
The threshold for instant asset write-off is increased from $30,000 to $150,000 and access is expanded to businesses with aggregated annual turnover less than $500 million (previously $50 million) until the end of the 2019-20 financial year (i.e. 30 June 2020).
Up until the end of the 2020-21 financial years, depreciation deductions are accelerated for businesses under the same $500 million threshold. Upon installation of assets, 50% can be deduced with existing depreciation deduction rates to the balance. This measure is considered an investment incentive for businesses.
Supporting Apprentices and Trainees
Eligible employers may have 50% of an apprentice’s or trainee’s wage subsidised between 1 January 2020 and 30 September 2020. When businesses are unable to retain their apprentice or trainee, the subsidy can be provided to a new employer. As a part of this program, Australia’s National Apprentice Employment Network will provide further support in coordinating re-employment of workers affected by the COVID-19 crisis.
Support for Affected Regions and Industries
$1 billion of stimulus funds is reserved to support regions that are most impacted by the COVID-19 crisis. The purpose is to provide assistance during both the outbreak and the recovery. Further, the Australian airline industry is receiving tax and fee relief, with an estimate value of $715 million.
Support Flow of Credit
Immediate Cash Flow Needs for SMEs
The Government is providing guarantees of 50% for SME lenders to encourage new short-term unsecured loans for SMEs. By increasing lender’s willingness to provide credit, Australian businesses will be in a better position to secure loans and increase their cash flow.
Quick and efficient access to credit for small business
Small businesses will have more and faster access to credit as an exemption is provided to ‘responsible lending’ requirements.
Reserve Bank of Australia Measures to Support Credit Flow
The Reserve Bank of Australia (RBA) has made funding available for banks at a fixed interest rate of 0.25%. This measure will reinforce a lower cash rate, helping to reduce interest rates for borrowers. The RBA funding is incentivised to banks who expand their business lending, especially for new loans to SMEs. To complement the interest rate cut, the RBA is taking active steps to achieve a 0.25% yield on Australian Government securities
Support for Non-ADI and smaller ADI lenders in the securitisation market
The Australian Office of Financial Management (AOFM) is receiving $15 billion in funding to invest in structured finance markets. The target of this measure is smaller authorised deposit taking institutions (ADI) and non-ADI lenders.
Australian Prudential Regulatory Authority (APRA) Supporting Lending
APRA is temporarily changing their expectations of a banks’ capital ratios in order to support their lending.
Supporting Individuals and Households
JobSeeker Payment
In response to a sudden and sharp increase in the number of unemployed Australians, a new streamlined processing of JobSeeker claims was introduced. JobSeeker is a pre-existing welfare payment available to eligible Australians while they are unemployed and in the active pursuit of gainful employment.
An employee cannot be in simultaneous receipt of JobKeeper and JobSeeker payments.
Changes to Other Income Support Payments
Recipients of income support payments are eligible for an additional fortnightly payment of $550 for a temporary six-month period. At the same time, eligibility for the payments has been expanded to allow for more Australians to receive the income support, and the supplementary fortnightly payment.
In addition to the ongoing payments, two separate $750 payments may be made to Australian income support recipients. The first payment was made on 31 March 2020, and the second payment is scheduled for 13 July 2020. The second payment is not available to recipients of the $550 fortnightly supplement. These stimulus injections are intended to increase confidence and domestic demand in the economy.
Changes to Superannuation
Australia’s superannuation program mandates wage contributions to a superfund in the purpose of supporting retirees and ensuring they have the financial means to survive and maintain quality of life. With the COVID-19 outbreak, two new measures have been introduced to allow Australian retirees to manage the impact of recent downturn on their superannuation and financial circumstances.
The first measure is allowing individuals to withdraw up to $10,000 from their superannuation in 2019-20 and an additional $10,000 in the following financial year. This withdrawal will not be taxed, nor will it affect income testing for income support payments.
The second measure is a temporary reduction of Superannuation drawdown requirements for retirees with account-base pensions. A reduction of 50% applies in both 2019-20 and 2020-21. This will lower the need to sell investment assets to fund minimum drawdown requirements.
Reduction of Social Security Deeming Rates
Both upper and lower social security rates were dropped by 0.5% on 12 March 2020. Another reduction has been announced, from 1 May 2020 the upper rate will be 2.25% and the lower 0.25%. This measure is in response to lowering interest rates and the reduction of savings income. Practically, this will mean an average increase of $105 in the Age Pension during the first year.