With businesses and beaches virtually closed down by a Coronavirus-concerned Canberra and the Government’s sidekick state governments, the big question is: will the scariness of our uncertain futures be offset by the $189 billion that the PM and the Treasurer are throwing at the problem?
The number-crunchers say that this is about 9.7% of GDP and undoubtedly it will be bigger after the States throw in their assistance, such as the payroll tax holiday and so on.
Normal people and even economists like me are shocked and awed by the idea that most of us will be working from home for who knows how long. Even today we’re not entirely sure who is in an essential service!
Based on the $1.9 trillion worth of Gross Domestic Product (GDP) we make each year, we produce about $190 billion worth of goods and services each month. That means the Government’s $189 billion will help make up for about one lost month of GDP. And even though we might see the economy badly hampered for two months, there still will be production of goods and services from essential services and businesses performing many services from their home-based staff.
(The economic hangover could be with us for six months but the pickup for GDP from the stimulus will be operating ASAP.)
We also have to remember that $90 billion of the $189 billion is money the Reserve Bank makes available to banks to lend out to businesses at lower rates of interest.
The Government’s rescue has seen the banks jump to join the mission.
CBA Chief Executive Officer, Matt Comyn, got on the front foot on Sunday morning and said: “We welcome today’s announcement by the Government, which will help hundreds of thousands of small businesses stay afloat and millions of workers keep their jobs over the next six months. It will help businesses reopen and help people get back to work following this unprecedented set of circumstances. “The Commonwealth Bank will support as many of the Government supported loans as possible and in doing so make available up to $10 billion of additional unsecured credit to support small and medium businesses.”
Westpac followed up with the following undertakings: “Westpac today confirmed its support of the Federal Government Coronavirus SME Guarantee Scheme, which will see the government guarantee 50 per cent of new loans issued by eligible lenders to small and medium size businesses. From Monday 23 March, Westpac will offer an unsecured 3-year term loan up to $250,000 to all business customers with a turnover of less than $50 million. This offer will be available with a 6 month payment free option which will be capitalised at the end of the 6-month period.
“This loan will be available to both existing and new customers that meet the eligibility criteria for a 6-month period. These loans will be offered at a 4% discount to our current unsecured small business loan.”
These are huge offerings and are just as shocking, in a good way, as the shocks of workers being ‘banned’ from their businesses and their beaches!
Below is a quick summary of what the Government is prepared to throw at this economic curve ball from hell. And if it’s not enough, there will be more stimulus.
• Super support:
• Business support
These measures aim to support over 3.5 million businesses (over 99% of businesses) employing more than 9.7 million employees.
Boosting Cash Flow for Employers: This measure will be doubled from the first stimulus package released on 12 March, 2020. This affects businesses with turnovers less than $50 million. Employers will receive a payment equal to 100% of their salary and wages withheld (up from 50%), with the maximum payment being increased from $25,000 to $50,000. In addition, the minimum payment is being increased from $2,000 to $10,000. And this effective tax rebate will again be available from April 28. A business could receive as much as $100,000 and a minimum of $20,000 over the two periods.
Here’s an example from www.treasury.gov.au:
Sarah owns and runs a building business in South Australia and employs 8 construction workers on average full-time weekly earnings, who each earn $89,730 per year. Sarah reports withholding of $15,008 for her employees on each of her monthly Business Activity Statements (BAS).
Under the Government’s changes, Sarah will be eligible to receive the payment on lodgement of her BAS. Sarah’s business receives:
Under the previously announced Boosting Cash Flow for Employers measure, Sarah’s business would have received a maximum payment of $25,000.
Under the Government’s enhanced Boosting Cash Flow for Employers measure, Sarah’s business will receive $100,000. This is an additional $75,000 to support her business and help her retain her staff.
A smaller business example:
Tim owns and runs a small paper delivery business in Melbourne, and employs two casual employees who each earn $10,000 per year. In his quarterly BAS, Tim reports withholding of $0 for his employees as they are under the tax-free threshold.
Under the Government’s changes, Tim will be eligible to receive the payment on lodgement of his BAS.
Tim’s business will receive:
If Tim begins withholding tax for the June quarter, he would need to withhold more than $10,000 before he receives any additional payment.
Under the previously announced Boosting Cash Flow for Employers measure, Tim’s business would have received a total payment of $2,000.
Under the Government’s enhanced Boosting Cash Flow for Employers measure, Tim’s business will receive $20,000. This is an additional $18,000 to support his business.
• Relief for Financially Distressed Businesses: Measures will be taken to help Coronavirus challenged businesses in the following ways:
• Support for the regions
The Government will set aside $1 billion to support regions most significantly affected by the Coronavirus outbreak. These funds will be available to assist during the outbreak and the recovery. In addition, the Government is assisting our airline industry by providing relief from a number of taxes and Government charges, estimated to total up to $715 million.
• RBA and the banks
And the message is clear from the Government that if more spending is needed, then it will spend more.
So what’s the big hope?
The beating of the Coronavirus happens within a month and workers get back to work and this stimulus does the heavy-lifting, unleashing multiplier effects that will propel the economy into good growth by the December quarter or even earlier!
I won’t be watching economic data seriously or even caring about the ups and downs of the stock market until the infection and death rates point to the worst of this damn virus being behind us, the Europeans, the USA and the rest of the world.
Go the world!