Economic and Fiscal Update

31 July 2020

In its Economic and Fiscal Update released last week, the Morrison Government delivered the eye watering impact that the Coronavirus has had on the Australian economy as well as its plan for recovery. 

The update has been provided in advance of the Budget which will be handed down on 6 October 2020. 

Key points from the update

• After a predicted budget surplus of $5 billion, the 2019/20 FY ended with a forecasted deficit of almost $86 billion (the worst deficit our country has seen since WWII), with a deficit of $184 billion forecast for the 2020/21 FY.
• Net debt reached $488 billion at the end of June and is expected to increase to $677 billion, equivalent to almost 36 % of GDP, this financial year.
• Gross debt was $684 billion at the end of 2019-20 FY and is tipped to reach $852 billion in the 2020-21 FY.
• Treasury is predicting an unemployment rate of more than 9 per cent by the end of this year.

Key policy response measures

Protecting jobs and stimulating economic recovery are key to the Government’s recovery plan, with the Treasurer revealing plans to extend access to superannuation, investment in major infrastructure projects and extensions to existing stimulus measures.    

There has been much concern that many businesses and individuals would suffer at the “economic cliff” that was expected in September, when many of the stimulus measures were initially intended to end. As a result, the Government has extended various measures for a further period of time, to assist the economic recovery.

Here’s a summary of the newly announced measures and extensions.

JobKeeper Extension

Further to our recent update, the Government has extended the JobKeeper scheme for an additional six months until 28 March 2021, with the scheme open to eligible recipients, where they meet the required criteria.

• Payments received under the existing scheme will remain set at $1,500 per fortnight until 27 September 2020.
• From 28 September until 3 January 2021, full-time workers will receive $1,200 per fortnight. Those working 20 hours or fewer will receive $750. 
• From 4 January 2021 until 28 March 2021, full-time workers will receive $1,000 per fortnight and those working 20 hours or fewer will receive $650.

As previously alerted to, the extended scheme will be subject to revised eligibility tests, which will measure the decline in turnover using actual GST turnover relative to the comparable 2019 period. We await detail of these tests. 

Greater flexibility will be sought by the industry body

As proposed currently, the new decline in turnover test will require employers and eligible business participants to demonstrate that their actual GST turnover has declined by the requisite percentage in both the June and September quarters, with a decline in the December quarter also required for entities looking to receive JobKeeper payments in 2021.

It is expected that a submission to Treasury by accounting bodies will request greater flexibility on this requirement, with businesses whose situations have improved in the June quarter, but have subsequently deteriorated in the September quarter, unable to gain access to the extended JobKeeper Scheme, as currently proposed. It is hoped that sufficient industry consultation will occur prior to the release of the amending legislation, such that businesses will have greater certainty as to their ability to satisfy the tests prior to enrolment deadlines, unlike the difficulties faced following the introduction of these measures in April.

20+hour look back test

Businesses and not-for-profits will be required to nominate which payment rate they are claiming for each of their eligible employees (or business participants), with eligibility subject to a lookback test.

The full tier one rate is available for those eligible employees that were working in the business or not-for-profit for 20 hours or more a week on average, in the four weeks of pay periods before 1 March 2020.  The full rate is also available for those eligible business participants who were actively engaged in the business for 20 hours or more per week on average in the month of February 2020.

The Commissioner has discretion to apply an alternative test if the employees or eligible business participants hours were not usual during this period.

Eligibility for start-ups still uncertain

Whilst the legislation and rules for the revised JobKeeper Scheme have not yet been released, it is hoped that they will allow provision for the Commissioner to consider other forms of evidence in determining eligibility.  This will be relevant for new businesses reporting on a quarterly basis and currently unable to qualify for the payments on the basis that they are unable to notify the ATO of taxable supplies made before 12 March.  Noting that such business could be eligible where they report on a monthly basis.

It is expected that professional accounting bodies will also make a submission to Treasury to address this anomaly.

The ATO to adopt a lenient approach to mistakes made as part of the current JobKeeper Scheme

Whist the ATO has advised more than 8,000 businesses that their JobKeeper payments will cease due to not meeting eligibility criteria, the ATO has now advised that it will not seek to recover JobKeeper payments from employers who have made an honest mistake.

It is also expected that the ATO will introduce more eligibility checks into the application process to ensure that a similar situation is not created for the extended JobKeeper Scheme.

 Income support extended but at a lower payment rate

The Government has extended the supplement payment period  for those on an eligible income support payment to 31 December 2020, however from 25 September 2020, the payment will be cut to $250 per fortnight.

The JobSeeker payment will also be reduced from $1,100 to $800 a fortnight in September 2020, however the revised program will allow recipients to earn $300 a fortnight before facing a reduction in their government payment.

From 25 September 2020, means testing will be reintroduced and income test for partners of job seekers will be increased from $48,000 to $79,762 to provide greater access.  

Eligible sole traders will be granted access to the JobSeeker payment scheme, with individuals able to earn up to $1,075 per fortnight from operating their business before their payments are affected.

Extended access to superannuation

The Government has extended the application period from 24 September 2020 to 31 December 2020 for eligible Australian and New Zealand citizens and permanent residents wishing to access an early release of superannuation (up to $10,000).   

Application is subject to eligibility criteria however tax will not be payable on amounts released from super and the amount will not affect Centrelink and Veterans’ Affairs payments, or the JobKeeper Payment.

Small business loans

The Government will continue to offer small and medium-sized businesses impacted by COVID-19 with part-guaranteed loans.

The original scheme allowed for small businesses to borrow $250,000 unsecured over three years, with the Government as a guarantor, with repayments not required for six months.

The new scheme will be extended to five years, will allow for borrowings up to $1 million, and will begin on 1 October this year and will be made available until 30 June 2021.

Businesses with a turnover of up to $50 million that pass the lenders’ credit assessment processes will be eligible.

Apprentices and trainees

The Supporting Apprentices and Trainees (SAT) wage subsidy will be extended for a further six months to 31 March 2021.  The scheme will also be expanded from 1 July 2020 to 31 March 2021 to include those medium-sized businesses that have up to 200 employees.  Subsidies will also be available to any new employer who re-engages an eligible apprentice that was displaced by an eligible small or medium sized business.

Eligible employers will receive a wage subsidy (reimbursed in arrears ) of up to 50 per cent of the wages paid, worth up to $7,000 per quarter, per eligible apprentice or trainee, for wages paid from 1 July 2020 – 31 March 2021.

The apprentices or trainees must have been in-training with the business as at 1 July 2020.

Proposed tax rate cuts

In its update the Government was silent on whether or not the timing of the legislated personal income tax cuts may be brought forward as part of the Budget in October, in order to assist in stimulating consumer confidence and spending. It is noted however that the Treasurer has previously indicated that the Government would not be looking to increase personal taxes in order recover some of the budget deficit.

Under the existing personal income tax cuts, legislated to apply from 1 July 2022:

• The $37,000 income threshold for the 19% rate will increase to $45,000.
• The $90,000 threshold for the 32.5% rate will increase to $120,000.
• From 2024-25, the rate that applies to taxable income between $45,000 and $200,000 will be 30% and the top marginal tax rate of 45% will apply to taxable income in excess of $200,000 (i.e. the 37% bracket will be abolished).

It remains to be seen whether the timing of the reductions will be accelerated in light of the current economic environment.

Banks to extend mortgage loan deferral

Bank customers still struggling financially due to COVID-19 will be given another four months to start paying back their loans.

However, banks have advised that the extensions will not be automatic and any customer who can afford to start repaying their mortgage or business loan will be expected to do so once the initial six-month deferral period expires in September 2020.

WA STATE GOVERNMENT ANNOUNCEMENTS

WA’s small business stimulus/relief package

The West Australian Government has previously announced various economic stimulus measures – here’s a recap of the relief that you may wish to consider whether you can access in the new financial year.

• Business that have benefited from the Payroll tax waiver relief for the past four months are now seeing the payroll tax grant of $17,500 flowing back to them following lodgement of the end of year annual payroll tax reconciliations. Whilst the payroll tax waiver and grant relief has now ended, the payroll tax threshold has increased to $1 million with effect from 1 July 2020, being brought forward from 1 January 2021.
• Affected businesses can apply for interest free payment arrangements and for late payment penalties to be waved for a range of taxes and duties, including payroll tax, transfer duty, landholder duty or land tax.
• From 2 June, businesses that are eligible for JobKeeper Payment and have more than three major water fixtures can apply to Water Corporation to have their wastewater service charges waived for the fourth to 200th fixture, for the period 1 May – 21 August 31 2020.
• For Synergy and Horizon Power customers, a one-off $2,500 credit on electricity bills will be applied to small businesses that consume less than 50MWh per annum, and power and water disconnections will not occur and interest will not be charged on deferred payments until 30 September for small businesses facing financial difficulty due to COVID-19.
• A range of business licence fees have been waived, including liquor licence renewal fees for 2020, which will be waived, and refunds given to businesses that have already paid.

Relief for commercial landlords

The WA Government is offering grants to commercial landlords, who provide rent relief for a minimum of three months and freeze outgoings to small businesses that have suffered at least a 30 per cent reduction in turnover due to COVID-19.

Grants equivalent to 25 per cent of the landlord’s land tax bill for 2019-20 for the property in which an eligible tenant is provided relief will be paid to landlords.

Construction sector

In addition to the above measures and in an effort to stimulate the residential construction sector, the Federal Government has previously announced and introduced the HomeBuilder scheme. 

The scheme provides eligible owner-occupiers (including first home buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home.  The scheme complements other Federal and state-based housing grant programs. 

Since the announcement of the scheme, the building and construction industry has experienced a significant increase in enquiries for new builds, while many property developers have welcomed the increased demand for land, with the scheme providing the incentives needed for potential homeowners to make the decision to commit to build.

For more information regarding the full raft of the Federal and State government construction grants, look out for our upcoming Property alert.

Other State Government announcements

The State Government has also recently announced a number of other incentives and industry grants to assist businesses with their economic recovery in WA.  These are summarised below:

• The Kimberley Recovery Plan – to boost employment, significant investment will be made in the construction, manufacturing, tourism and hospitality, renewable energy, education and training, and agriculture sectors.
• $116 million committed to promoting investment in the regional building and construction sector. It is anticipated that the  Regional Land Booster package will provide affordable land packages across 1,095 development-ready industrial, commercial and residential lots in WA.
• Geraldton port – $11.6 million to be invested in critical infrastructure to create local jobs and develop future export capabilities.
• Rebuilding our TAFEs plan – $229.2 million committed to the plan, including a $167.4 million investment in capital works projects to upgrade essential infrastructure across the 5 Western Australian TAFE colleges.
• Green jobs plan – $60.3 million to be invested in environmental projects and creation of conservation jobs in WA.
• Sir Charles Gardiner hospital emergency department to undergo a $19 million upgrade.
• Local Capability Fund – under this scheme, funding of up to $100,000 will be made available to WA small or medium enterprises impacted by COVID-19.  Funding may be used for things such as upgrading plant and equipment, upskilling staff, improving business infrastructure and engaging specialists to help with a range of needs like online sales solutions and cyber security.   The Fund will also provide grants of up to $500,000 per business to assist small and medium enterprises wishing to manufacture PPE such as masks, face visors, coveralls and ventilators.  

WHERE WE CAN ASSIST YOU

If you would like to discuss any matters in this newsletter in further detail, please do not hesitate to contact your Cooper Partners Engagement Team.

This newsletter is current as of 31 July 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.