Following on from last week’s initial stimulus package, the Federal Government yesterday came out swinging with a second round of initiatives designed to support business through the challenge of COVID-19.
Last week the Government announced support for business which included 50 per cent cashback on Pay As You Go Withholding (PAYGW), along with incentives to keep apprentices and trainees employed.
This week they went a whole lot further, announcing further cashback incentives for employment along with greater access to loans. This brings the total stimulus package to $189 billion, or about 10 per cent of the nation’s GDP.
Basically that means that Scomo is injecting 10 per cent of Australia’s total economy towards small businesses jobseekers, the unemployed and retirees.
There were a few key updates that will directly impact small business owners, outlined as follows:
1) 100% Cashback on PAYG Withholding, up to $100,000 in total
- Eligible small and medium-sized employers will be provided a 100 per cent tax-free ‘cash back’ of up to $50,000 (and a minimum of $10,000) on your PAYG Withholding on wages between 1 January 2020 and 30 June 2020.
- This replaces the previously announced $25,000 cash back.
- In addition to this, a second tranche of tax-free, cash cash back payments of up to $50,000 (and a minimum of $10,000) on your PAYG Withholding on wages will also be paid for the period 30 June 2020 – 30 September 2020.
- This second payment is calculated as the total cash back credit calculated in the first payment, split evenly over the June-20 to September 20 BAS/IAS lodgement period.
- So to summarise – the cash back is now calculated on 100 per cent of PAYGW of your wages, paid in two separate calculation periods:
So, breaking this down:
- Payment 1
- If you have spent more than $50,000 in PAYGW for the six-month period between 1 January and 30 June 2020, you will receive $50,000 in cash from the Government for this period.
- If you have spent $30,000 in PAYGW for the same period, you will get $30,000.
- Regarding the Additional Payment (Payment 2):
- The same total benefit per Payment 1 is paid equally over your BAS/IAS lodgement period between 30 June 2020 and 30 September 2020
Government underwritten, Cash flow loans for SMEs
This measure is a little bit less nuanced, but has the potential to create significant flow on effects to the economy.
- The Government will provide a guarantee of 50 per cent of new loans written by banks and SME lenders to support new short-term unsecured loans to SMEs.
- Important clarification – this does not mean the Federal Government is issuing loans directly.
- It means that the Government is providing a guarantee to banks and SME lenders to reduce their risk to provide unsecured loans to SMEs that need the cash for working capital.
So what does this mean for me?
- Expect a new type of loan product issued by the banks and lenders, tailored for SMEs that have been directly disrupted by COVID-19
My personal thoughts
Thousands of small businesses have been hit with an overnight disappearance of revenue with no reduction in fixed costs.
Nothing like this has happened before.
Business owners need cash to fund their fixed costs until things ‘can get back to normal’. When that will be? Scott Morrison signalled ‘six months of pain’ in his address to the public yesterday.
Whilst the $100,000 cash payment is welcomed by small businesses, it is certainly not enough to carry the trading losses of a small business for a six-month period.
And as for the ‘easier access to credit’ measures? This is a Government funded bank bail-out package, more than anything.
I mean, should the Government really be encouraging small business owners to rack up more debt just for short-term survival?
With the RBA cash rate at 0.25 per cent, debt is the cheapest it’s ever been.
But the problem with debt is that you need to pay it back eventually. It follows you for life.
What happens when the economy eventually bounces back in 3+ years and interest rates increase again?
This won’t end badly at all…
About the author
Jason Andrew is a chartered accountant, founder and business advisor to high-growth businesses. His accounting firm, SBO.Financial focuses on helping growth businesses with their numbers – ranging from bookkeeping, financial control and profit and cash flow maximisation strategies.