Historic stimulus a welcome relief to mid-market businesses

From

John Brazzle

The Pitcher Partners network congratulates the federal government for legislating a comprehensive $189 billion economic stimulus package.

These measures were announced in several tranches. Last week, the government announced a $17.6 billion package, alongside an additional $90 billion from the Reserve Bank of Australia, plus $15 billion to deliver easier access to finance. Over the weekend, a further $66.1 billion has been announced, bringing the total economic support to around 9.7% of GDP.

“In particular we are pleased to see the focus on small-to-medium enterprises and mid-market businesses. Often referred to as the engine room of Australia’s economy, our mid-market clients are responsible for $625 billion – or just under 25% – of the nation’s revenue,” says John Brazzale, Partner and National Chairman of the Pitcher Partners network.

“We welcome the announcement of tax-free, cash payments from $20,000 up to $100,000 for small and medium sized businesses (SME), and not-for-profits (including charities) that employ people.”

As an incentive to hold onto workers for another month, from 28 April 2020, employers will receive a payment equal to 100 per cent of staff wage tax withholdings (up from 50 per cent). The maximum payment is also being increased from $25,000 to $50,000, and the minimum payment is being increased from $2,000 to $10,000.

“It remains to be seen whether this payment will come soon enough to save jobs in smaller enterprises,” says Mr Brazzale. “We will certainly see clients asking whether holding onto their staff will benefit them in the longer term.”

A second stimulus will also be made available to businesses 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 measure is meant to encourage continued employment, hence the link to staff wages.”

“This means all small and medium business entities with employees and an aggregated annual turnover under $50 million are eligible.”

Lending will be on the rise due to a new SME Guarantee Scheme. The government will guarantee 50 per cent of new loans issued by eligible lenders to SMEs, to allow $40 billion of lending to SMEs.

The government has also offered its support to the RBA’s announcement of a $90 billion term funding facility for ADIs. This measure will reduce the cost of lending, with particular incentives to lend to small and medium enterprises.

The government has flagged dramatic changes to insolvency law which will act as a safety net for anxious business owners, directors and managers.

While increased insolvency numbers in the near future appears almost certain, the measures seek to support business owners and company the directors who consider themselves to have a profitable and viable underlying business, but need temporary assistance to make it past current crisis.

The government is temporarily increasing the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000. They are also increasing the time companies have to respond to statutory demands, and relieving directors of their duty to prevent insolvency over the next 6 months.

“Interestingly, the wide-sweeping relief from personal liability under this measure represents a significantly stronger and broader measure than the ‘safe harbour provisions’ previously announced,” says Brazzale.

“Those provisions have, by and large, been generally found to be most useful to larger businesses. This announcement has far more wide-sweeping implications, particularly to small and medium enterprises.”

The Corporations Act 2001 will be amended to provide temporary and targeted relief, including temporary relief for directors from any personal liability for trading while insolvent.

Households – including casuals, sole-traders, retirees and those on income support – will also see some benefits over this period.

For those on income support, an additional $550 a fortnight will be paid over the next six months on top of existing payments. Waiting periods for the jobseeker payment will be waived if the job loss has occurred as a result of the coronavirus.

An extra $750 will be sent to around 5 million social security, veteran income support recipients and eligible concession card holders from 13 July 2020. This does not include those who are already on the increased income support payments.

In an unprecedented move, the government has allowed individuals in financial stress to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21, without any tax or income payment penalty.

They have also announced a superannuation minimum drawdown. This means that requirements for account-based pensions and similar products will be temporarily reduced by 50 per cent for 2019-20 and 2020-21.

“These measures are directed to those retirees with account-based pensions and similar products and are aimed to reduce the need to sell investment assets to fund minimum drawdown requirements,” says Brazzale.

Finally, social security rates will be reduced as of 1 May 2020, to a lower deeming rate of 0.25 per cent and upper deeming rate of 2.25 per cent.

Mr Brazzale says that these measures, while decisive and welcome, may not be adequate to prevent the damage of a worst-case-scenario virus.

“Businesses will no doubt struggle with uncertainty over the coming months. They will require advice particularly around how to update their financial modelling and forecasts during this time.”

“We expect to see further policy measures rolled out by state and federal governments to ensure that Australians can return to a ‘business as usual’ lifestyle and economy as soon as it is safe to do so.”

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