This morning, Sunday, 22 March 2020, Prime Minister Scott Morrison and Treasurer Josh Frydenberg announced an additional $66b in COVID-19 economic support.
Coupled with the Federal Government’s previous $17.6b stimulus package, the $90b from the RBA and the $15b from the Federal Government to deliver easier access to finance, Federal economic stimulus currently sits at nearly 10% of GDP.
The Treasurer said we can expect the economic shock to be deeper, wider and longer. Actions taken now will cushion the blow of the coming downturn and help as many businesses and people as possible to come out the other side. They are temporary, scalable and sustainable.
In response, the priority for this stimulus remains support for small businesses, with wage subsidies of up to $100,000, and access to a further $20b in government guaranteed unsecured loans (capped at $250,000) on offer.
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 such demands. 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.
Images of Australians packed onto Bondi Beach in spite of social distancing restrictions means that the Government will be enforcing stronger “draconian” measures to ensure that social distancing is abided by. We can expect to hear more on this in coming weeks.
A special meeting of the National Cabinet (including Federal and State leaders) will be held this evening for the Government to consider further measures to manage localised breakouts. As far as possible, this will be nationally consistent, recognising that managing an outbreak in an inner-city community could be different to managing an outbreak in a rural community.
It was also made clear that many businesses will not survive the crisis and a third round of economic measures has been flagged in the weeks or months to come.
All non-essential travel to be cancelled
- All non-essential travel, including domestic travel, has been restricted.
Boosting cash flow for employers
- An increase from the first package, small and medium business and not-for-profit (including charities) employers with aggregated annual turnovers of under $50m will be eligible for tax-free payments of up to $100,000 per employer. The first payment (capped at $50,000) will be made after 28th April and the second payment (also capped at $50,000) after 28 July 2020. This is the single largest measure in this package and represents approximately $31.9b.
- SMEs with aggregated annual turnovers of under $50m employers will now receive two payments equal to 100 per cent of their PAYG withheld on salary and wages with each maximum payment increased from $25,000 under the first package) to $50,000, for a total maximum payment of $100,000.
- Eligible businesses that pay salary and wages but are not required to withhold tax will receive a minimum payment of $20,000, up from $2000 in the first package. The payment will be available from 28 April 2020 and, as stated in the previous stimulus update, will be paid as a credit to the business upon lodgement of their activity statements.
- The payments are tax free, there will be no new forms and payments will flow automatically through the ATO.
Coronavirus SME Guarantee Scheme
- The Government commits to underwrite $20b worth of loans as a 50 per cent guarantee to support lending of up to $40 billion to SMEs from bank and non-bank lenders.
- Starting in early April, this will apply to eligible loans for businesses with annual turnovers of up to $50 million and will include an upfront six month freeze on repayments.
- The loans will be unsecured but used only for working capital purposes and will apply to loans granted within six months from April 1, 2020. New and existing bank customers will be able to apply for loans up to $250,000 over three years.
Providing temporary relief for financially distressed businesses
- Temporary increase to the threshold at which a creditor can take action to initiate insolvency or bankruptcy from $2000 to $20,000 and giving companies and individuals six months instead of 21 days to respond.
- Relief for directors for personal liability when the company is 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 relief will be provided over the next six months.
- ASIC has also released guidance on AGMs and reporting for listed entities.
Payments for households
- 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. This second payment will be made automatically from 13 July 2020 and is estimated to cost $4b over the forward estimates period.
- Temporary eligibility expansion to income support payments and establishing a new, time-limited Coronavirus supplement to be paid at a rate of $550 per fortnight.
- This will be paid to both existing and new recipients of the JobSeeker Payment, Youth Allowance jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit.
- The Coronavirus supplement will be paid for the next 6 months. Eligible income support recipients will receive the full amount of the $550 Coronavirus supplement on top of their payment each fortnight.
- This measure is estimated to cost $14.1 billion over the forward estimates period.
Early release of superannuation
- From April, individuals will be able to access their superannuation, capped at $10,000 this financial year and a further $10,000 next financial year. The withdrawals will be tax-free and will be made available to those eligible for the coronavirus supplement as well as sole traders who have seen that hours of work, or income fall, 20% of more as a result of the coronavirus.
- Eligible individuals will be able to apply online through myGov for access of up to $10,000 of their superannuation before 1 July 2020. They will also be able to access up to a further $10,000 from 1 July 2020 for another three months. They will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments. This measure is estimated to cost $1.2 billion over the forward estimates period.
Superannuation minimum drawdown rates and social security deeming rates
- Temporary reduction to superannuation minimum drawdown requirements for account based pensions and similar products by 50 per cent for 2019-20 and 2020-21.
- Reduction of the deeming rates by a further 0.25 percentage points to reflect the latest rate reductions by the RBA. 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. This measure is estimated to cost $876m over the forward estimates period.
Is nationalising companies on the cards?
There is some discussion around nationalising of critical businesses to ensure their continuity and the services they provide. This could include airlines.