We're lucky to be in Australia and even more so in these times with a global pandemic of COVID-19. Businesses have struggled, people have self-isolated and the Government has done its best to prop up businesses with the Jobkeeper payment and other stimulus measures. The economy has suffered greatly, and it will take time to revert to pre-COVID times. Due to our geographical isolation and quick actions of Governments, we were able to contain the number of cases of Coronavirus to a degree, however, with the recent spike in Victoria, we need to remain vigilant. A second wave is occurring, and it is up to states and territories to contain this and keep strategising to reduce the detrimental impact on our economy.
Australia compared to the rest of the world: supporting businesses
The Government was quick to act, and we saw within a span of a few weeks, the Government released three stimulus packages at a significant cost to the country. While the overall cost of the JobKeeper package was grossly overstated due to the widely reported “administrative error”, it should not discount the fact that the Government has ploughed in vast sums of money to protect families and businesses across Australia. Money not spent due to the administrative error is not money saved as it means the Government has to borrow less to fund the stimulus payments. Still, it does mean there may be some flexibility around the future of the JobKeeper program, which is scheduled to end in less than three months. For example, with restrictions increasing in Victoria, we hope there may be some further relief available to those businesses impacted by these adverse conditions.
The following is a snapshot of the tax-based stimulus Australia provided to keep people employed as compared to some other countries:
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Australia
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Canada
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United Kingdom
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United States of America
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Salary reimbursements
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JobKeeper
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Canada Emergency Wage Subsidy (CEWS)
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Coronavirus Job Retention Scheme
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No equivalent
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Eligible employers whose business has been affected by COVID-19 can apply to the JobKeeper program for payments made to eligible employees from 30 March - 28 September.
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An employer whose business has been affected by COVID-19 may be eligible for a subsidy of 75% of employee wages for up to 24 weeks, retroactive from 15 March, 2020, to 29 August, 2020.
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Employers who cannot maintain their workforce because their operations have been affected COVID-19can furlough employees and apply for a grant to cover a portion of their usual monthly wages.
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Does the employee need to be furloughed?
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No
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No
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Yes
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Amount
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AU$ 3,250 per month per eligible employee
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75% up to a maximum of CA$ 847 per week or CA$3,388 (AU$ 3,388) per month per eligible employee
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80% up to a maximum of GBP 2,500 (AU$ 4,500) per month per eligible employee
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Drop in turnover requirement
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30% (<$1 billion revenue) or 50% (>$1billion revenue)
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Generally, 30% (15% for March 2020 claims)
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No
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Payroll credits
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Cash Flow Boost (CFB)
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10% Temporary Wage Subsidy
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No equivalent
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The Employee Retention Credit
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Summary
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A six-month payment for Employers that provides a refund of Pay As You Go (PAYG) withholding paid.
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A three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA).
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N/A
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Designed to encourage employers to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in qualified wages paid to an employee by an eligible employer.
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Amount
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The subsidy is equal to a maximum of AU$100,000 and minimum of AU$20,000 per employer.
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The subsidy is equal to 10% of the remuneration paid from 18 March, 2020 to 19 June, 2020, up to CA$1,375 (AU$ 1,462) for each eligible employee to a maximum of CA$25,000 (AU$26,594) total per employer.
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N/A
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Capped at $5,000 credit for each employee retained. If less than 100 employees - paid on all employees. If more than 100 employees - paid to employees for a time, they were not working during the quarter.
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Drop in turnover?
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No
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No
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N/A
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Business must be either partially or fully suspended by government order or drop of 50% of more otherwise
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Australia was similar to the UK and Canada, which provided cash upfront to employers to support businesses. On the other hand, as part of their Paycheck Protection Program, the USA also provided substantial stimulus in the form of 'forgivable' loans to small businesses who used the funds for payroll costs and certain other costs.
All was not perfect with the delivery of the programs in Australia with several businesses missing out due to timing anomalies and many small businesses missing out if they did not pay salary and wages where business owners generally get “paid” in the form of trust distributions or dividends. The CFB, for instance, was paid through the lodgment of BAS’ which meant (a) businesses had to lodge their March 2020 BAS to access the CFB and (b) businesses had to do this whilst coming to terms with the JobKeeper program and try to demystify those rules and figure out whether the eligibility for the program was based on the BAS they needed to lodge as soon as possible to access the CFB.
In relation to the JobKeeper program, by turning employers into Centrelink, numerous employees were given pay rises by enforcing the minimum $1,500 ‘wage condition’, and this had led to widespread reports of a decline in productivity and has also reduced the motivation for workers in specific industries to get back to work. While the intention was to keep employees at the minimum wage level; it may have been better to provide 100% reimbursement of someone’s wages up to the $1,500 per fortnight rather than making employers “top up” the employees’ salaries to meet the minimum wage requirements to avoid such issues. For example, Canada provided up to 75% of an individual’s wages up to CA$847 per week.
In the United Kingdom, the Government funded 80% of a person’s salary up to a maximum of GBP 2,500 (AU$ 4,500) per month if they were furloughed as a result of COVID-19. However, we can appreciate the fact that the Australian Government provided similar assistance without the requirement of the individual being “furloughed”. Undoubtedly, employers would have had to face much harder questions, i.e. whether to furlough or not if something similar had been enacted in Australia.
The near future: The end of JobKeeper and what future stimulus may look like
The Government are currently reviewing the JobKeeper package to determine whether any tweaks are required as some businesses show signs of recovery.
There have been media reports that they may introduce new thresholds to test the decline in turnover (currently 30% for businesses with a turnover of less than $1 billion) to access the program similar to what New Zealand has done where they increased the revenue loss threshold to 40% (from the original 30%) as part of their Wage Subsidy Extension Scheme.
In Australia, at the time of announcing the package, most businesses would have assumed they will get the payments for six months, but the Government did have an “out” contained within the legislation which allows them to make changes before the September 2020 deadline. However, any drastic changes would significantly erode confidence in the Government, as has been suggested by the leading Accounting bodies within Australia. On the flip side though, numerous businesses have factored in these payments to keep staff employed, which has led to the “zombie” businesses just waiting to be “put down”. Not quite the type of zombies you would imagine at the start of a global pandemic.
About the future of stimulus activity, the Australian Government has already introduced payments for certain sectors such as the federal $25,000 HomeBuilder grant aimed at reviving the construction industry. This has been backed up by the States, and for example, Western Australia has introduced their own building grant of $20,000 which is being provided in addition to the federal grant and other state grants such as the first homeowner grant. However, the HomeBuilder did not come without flaws with the restrictive timeframe and high payment thresholds for renovations. This is probably what the future of all government stimulus will probably look like – support the industries and businesses most at risk such as tourism, hospitality and construction.
Revamp of taxes – is this the time?
The upcoming Budget in October 2020 is critical. Prime Minister Scott Morrison has already stated that he is against increasing income tax rates with his primary reason being that rate increases do not always help grow the economy. For example, in the mid-2010s, a temporary budget repair levy of 2% was in place for a few years to balance our books so it appears there may not be COVID-19 levy.
With tax rates for some corporate entities dropping this year to 26% (25% in 2021-22) and the legislated cuts to the individual tax rates over the new 3-4 years, it will be interesting to see what the Government will do. Treasurer Josh Frydenberg has already come out in the media and stated the Government are looking into the timing of the personal tax cuts to encourage consumer spending.
States have long questioned whether they should replace stamp duties with yearly land taxes and whether payroll tax should be abolished altogether, but without any other revenue to replace those lost taxes, those questions will continue to linger.
With GST celebrating its 20th birthday earlier this month, there has been no increase in the 10% rate since introduction which is much lower than the GST/VAT rates levied in other OECD countries which average at about 19.3% as at January 2019. These are the issues the Government will need to consider over the coming months and years but we need to be mindful that Government handouts will not persist forever and businesses need to gain traction on opening and remaining open for as long as they can. Supporting local businesses has never been more important, and the real test is the coming months when we battle with containing cases of COVID-19. Industries need growth and businesses need to be able to stand on their own two feet again.