In the space of just several weeks, we’ve transitioned from a relatively stable economy to one rocked by uncertainty. Globally markets have continued to drop, and experts are seeing parallels that suggest a recession is a very real, and sobering, possibility.
Australian businesses have been affected most, and with possible business closures in sight, a high percentage of SMEs will have to cease trading as normal. These businesses rely on their weekly cash flow to meet their payroll and if they are left with the payroll obligation but income grinds to a halt, they will be unable to operate – a frightening scenario.
The flow on effects are severe – potentially eventuating in lease defaults, loan defaults, a massive spike in unemployment, which will then impact individuals.
Last week, the Morrison Government announced a multi-billion-dollar economic plan to mitigate challenges faced by the impact of COVID-19, in a move that was seen to be timely, sensible, and proportionate. However, as it stands, the impact on Australians will still be widespread and severe.
These measures will add confidence to the economy. However, if there is a recession on the horizon, it will hit fast and hard and the measures currently in place will not be enough.
To look back, you need to head back to the early 1990’s for the last major recession Australia experienced. This government learnt the lessons from that experience and has also benefited from the experiences of 2008 and early 2009, when Australia very cleverly avoided a recession from the GFC.
The Rudd and Gillard governments were heavily criticised at the time for their policies, but they provided major stimulus to the economy. This was accomplished through two major programs: cash payments to most taxpayers and programs to subsidise household energy consumption.
So, what can businesses do to get ahead and put themselves in the best position to face possible adversity?
The Morrison government has learnt that government-run spending programs are inclined to be clunky, messy and with compliance problems. Thus, it is far better to give the money directly to businesses to help them stay afloat.
The major immediate assistance will flow to businesses with a turnover of less than $50 million, which constitute approximately 690,000 businesses employing approximately 7.8 million people. These businesses will receive a cash injection, tax free, equivalent to 50 per cent of their BAS, from 28th April. The minimum is $2,000 and the maximum is $25,000.
To get this money quickly, ensure that your April BAS is lodged as early as possible. There is also support for apprentices and trainees by way of a subsidy of 50 per cent of wages for a period of nine months, a great incentive for businesses to take on trainees and apprentices.
If you run a micro business and haven’t registered for GST, consider registering now to get a $2,000 grant.
The instant assets write-off threshold has been increased from $30,000 to $150,000 and now applies to businesses with a turnover of up to $500 million. This will be of real benefit only to businesses which have a looming tax liability for the current financial year. In such case, it’s a real incentive to purchase capital equipment, which will result in a tax deduction of the capital cost. Don’t delay. You must buy the equipment prior to June 30.
Something to watch is the investment incentive, which will apply for the period to 30 June 2021. If the impending recession is less severe than anticipated, this is something to plan for from about March 2021. An additional 50 per cent of the asset cost will be deductible during that tax year.
Recessions, particularly global ones, tend to develop a momentum and once they start, they become very difficult to control. A scary scenario for any business is the situation where it is forced to close for an extended period.
Australian businesses and government need to plan for this scenario, and they need to start planning now. The government will need to implement support strategies for companies to enable them to keep paying salaries after employees have used up all their entitlements.
This will produce a hit to the budget of epic proportions, but the lesson from 2008 is it’s better to have the hit early, rather than face the consequences of a protracted recession and see structural damage to the economy.
Roger Mendelson is CEO of Prushka Fast Debt Recovery Pty Ltd and is principal of Mendelsons National Debt Collection Lawyers Pty Ltd. Prushka acts for in excess of 58,000 small to medium size businesses across Australia and operates on the basis of NO RECOVERY – NO CHARGE. Free call 1800 641 617. Roger is also the author of The Ten Mistakes Businesses Make and How to Avoid Them and Business Survival, both published by New Holland Publishers.