While the full economic effects from the virus remain uncertain, the global and domestic outlook has deteriorated since the Government’s initial Economic Response announced on 12 March 2020. The spread of the virus worldwide has broadened and is expected to be more prolonged. Governments, both international and domestic, have announced stricter mitigation measures to slow the spread of the virus, which are having significant economic impacts.
Today we announce the introduction of a JobKeeper Payment which, combined with our previous actions, total $320 billion across the forward estimates, representing 16.4 per cent of annual GDP. These actions provide timely support to affected workers, businesses and the broader community.
HOW THE CORONAVIRUS WILL AFFECT THE GLOBAL AND AUSTRALIAN ECONOMIES
The outbreak of the virus has expanded and is a rapidly evolving challenge with significant health impacts. While the outbreak originated in China, significant outbreaks have occurred in Italy, Spain and Iran, as well as elsewhere in Europe and the United States. There are more than 190 countries reporting infections. Our health system is well prepared to manage this outbreak. We have a world-class health system which has pandemic plans that are currently activated.
The Government has put in place strong measures to protect Australians, including activating the National Incident Room, releasing masks and other Personal Protective Equipment from the National Medical Stockpile, enhancing border controls and imposing strict travel restrictions, and promoting social distancing to limit the spread.
The Government will continue to respond as the situation develops. The Government’s commitment of $3.6 billion to manage the outbreak in Australia will strengthen our health system to manage the Coronavirus in the community and protect vulnerable Australians. In addition, the Australian Government has agreed with the States and the Territories to share the public health costs incurred by the States in treating the Coronavirus.
In relation to aged care, temporary measures will be introduced to support the aged care sector with an additional $444.6 million. This includes funding for a retention bonus to ensure the continuity of the workforce in both residential and home care as well as funding to support the viability of residential aged care facilities.
This is in addition to more than $100 million that the Government previously announced to support the aged care workforce. The Coronavirus outbreak not only affects people’s health. The virus, along with the increasing health measures to slow its spread, will have significant economic implications.
The international economic outlook has worsened as the Coronavirus has spread. While the initial economic impact of the outbreak was most significantly felt in the Chinese economy, this has quickly evolved to other countries and regions. Major economies including the UK, Italy and Spain have announced they are in “lockdown” to contain the Coronavirus, which is expected to hinder economic activity over coming months.
In China, a range of economic indicators are showing that the Chinese economy has been severely impacted. A survey measure of activity in the manufacturing sector had its largest fall in its history in February. China also had record falls for industrial production, retail sales and fixed asset investment over January and February. Trade for this period was also significantly affected. Given China’s interconnectedness with the world, and its key role in supply chains, this decline will have flow-on economic impacts for the world.
But concerns about flow-on effects have been magnified as more countries take direct action to slow the Coronavirus spread. In particular, across the world we have seen a substantial increase in the breadth and severity of restrictions on the movement of people.
And this is showing up in confidence indicators in Europe, the United States and Asia. The global nature of the shock is evident in financial markets. Stock markets have fallen substantially around the world in recent weeks, while corporate bond spreads have widened. The Australian dollar is 11 per cent lower on a trade-weighted basis than it was in early January.
While markets initially incorporated sharp downward revisions to the economic outlook in an orderly way with few signs of dislocation, more recently we have seen significant financial market strains. Financial authorities around the world have responded with a range of measures to support market functioning and economic activity.
Oil prices have continued to fall and are now around 65 per cent lower than prices in early January, reflecting falling global demand and the collapse of an agreement between major producers to reduce output. While oil-linked LNG export prices will be negatively affected by these falls, consumers will benefit from lower petrol and gas prices.
In contrast, prices of key bulk commodities have remained resilient to date. This is likely due to an expectation that the Chinese authorities will move to boost domestic demand through ongoing measures, including increased investment in infrastructure. In response to the Coronavirus outbreak, fiscal authorities in numerous countries have announced measures to support their health systems and their economies.
Governments are supporting the sectors and workers most affected by the outbreak, and we are continuing to see the announcement of policies to help households and businesses cope as unprecedented shut-downs occur. Such policies have included loan arrangements, tax deferrals and relief, cash payments and income support. Monetary policy is also responding with around 70 central banks across the world easing policy in 2020 so far. Australia’s position heading into this crisis is stronger than many, with both the IMF and the OECD having forecast Australia to grow faster than comparable economies, including the UK, Canada, Japan, Germany and France.
Australian governments continue to act quickly and decisively to adjust our health measures to the scale of the threat. This scaling up of measures to protect the health of our community will have negative effects on the economy. Demand for goods and services will be lowered, and this will be concentrated in some industries such as tourism, hospitality and retail trade. Some businesses will be unable to operate in the usual way owing to restrictions on large gatherings or may face labour or supply chain challenges.
There remains considerable uncertainty around the economic implications of the Coronavirus for the June quarter and beyond, but the economic shock will be significant. There are a wide range of potential paths for the spread and containment of the virus globally and in Australia. In addition, there is uncertainty around the impact on confidence, people’s ability to work and business cash flow.
The global spread of the Coronavirus and its global economic impact will also flow through to demand for Australia’s exports and the availability of inputs into domestic production and imported consumption goods. There are automatic mechanisms that will help to support activity. The flexible exchange rate helps to mitigate the effect of shocks to global demand, we have a sound and well capitalised banking sector and our labour market has shown that it can flexibly respond — with firms adjusting more through hours, than the number of employees.
HOW THE FEDERAL GOVERNMENT IS RESPONDING
The Government’s consolidated package of $320 billion represents fiscal and balance sheet support across the forward estimates of 16.4 per cent of annual GDP. The support is designed to help businesses and households through the period ahead. This significant action has been taken in the national interest and has been updated in the light of the broader and more prolonged impact of the Coronavirus outbreak.
The package provides timely support to workers, households and businesses through a difficult time. Building on the previous measures, this package will support those most severely affected. It is also designed to position the Australian economy to recover strongly once the health challenge has been overcome.
The IMF and OECD have indicated that Australia is one of the advanced economies in the best positions to provide fiscal support without endangering debt sustainability.
SUMMARY OF THE ECONOMIC RESPONSE
The Government’s economic response will support households and business through the period ahead. It is designed to support businesses in managing short-term cash flow challenges, provide support to individuals, severely affected communities and regions, to ensure the continued flow of credit in the Australian economy and to ensure that employers can maintain connections with employees during this difficult period.
Support for businesses
On 30 March 2020, the Government announced the JobKeeper Payment for eligible businesses, which may include sole traders, whose turnover had reduced by more than 30 per cent if they have a turnover of less than $1 billion or by more than 50 per cent if they have a turnover of more than $1 billion.
Businesses subject to the Major Bank Levy will not be eligible. Following registration by the eligible business, the Government will provide $1,500 per fortnight per eligible employee for a maximum of 6 months. This will support employers to maintain their connection with employees. Please see the Supporting businesses to retain jobs fact sheet for more information on this measure.
Boosting Cash Flow for Employers
The Government is providing temporary cash flow support to small and medium businesses and not for profit (NFP) organisations that employ staff during the economic downturn associated with COVID-19 (novel coronavirus). This will be done through two sets of cash flow boosts delivered from 28 April 2020 to support employers to retain employees.
The Government will provide tax-free cash flow boosts of between $20,000 and $100,000 to eligible businesses, delivered through credits in the activity statement system, when eligible businesses lodge their activity statements. Small and medium-sized business entities with aggregated annual turnover under $50 million and that employ workers are eligible.
NFPs, including charities, with aggregated annual turnover under $50 million and that employ workers are also eligible. This will support employment at a time where NFPs are facing increasing demand for services. Eligible businesses will receive initial payments in the March to July 2020 period.
These payments will be equal to 100 per cent of their employees’ salary and wages withheld. The minimum initial payment is $10,000 and the maximum initial payment is $50,000. Businesses who received initial cash flow boosts will receive additional cash flow boosts for the periods June to September 2020, equal to the total amount of initial cash flow boosts received. This means that eligible businesses that employ people will receive at least $20,000 up to a total of $100,000 under both payments. This additional payment continues cash flow support over a longer period, increasing confidence, helping employers to retain staff and helping businesses to keep operating. Please see the Cash flow assistance for businesses fact sheet for more information on this measure.
Temporary relief for financially distressed businesses
The economic impacts of the Coronavirus and health measures to prevent its spread will see many otherwise profitable and viable businesses temporarily face financial distress. It is important that these businesses have a safety net to make sure that when the crisis has passed, they can resume normal business operations.
One element of that safety net is to lessen the threat of actions that could unnecessarily push them into insolvency and force the winding up of the business. The Government is temporarily increasing the threshold at which creditors can issue a statutory demand on a company and to initiate bankrupt proceedings against an individual as well as temporarily increasing the time companies and individuals have to respond to statutory demands they receive. The package also includes temporary relief for directors from any personal liability for trading while insolvent and providing temporary flexibility in the Corporations Act 2001 to provide targeted relief from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.
The ATO will tailor solutions for owners or directors of business that are currently struggling due to the Coronavirus, including temporary reduction of payments or deferrals, or withholding enforcement actions including Director Penalty Notices and wind-ups.
Increasing the instant asset write-off
The Government is increasing the instant asset write-off threshold from $30,000 to $150,000 and expanding access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020. In 2017-18 there were more than 360,000 businesses that benefited from the current instant asset write-off, claiming deductions to the value of over $4 billion. This measure will support over 3.5 million businesses (over 99 per cent of businesses) employing more than 9.7 million employees.
Backing business investment
The Government is introducing a time limited 15-month investment incentive (through to 30 June 2021) to support business investment and economic growth over the short term, by accelerating depreciation deductions. Businesses with a turnover of less than $500 million will be able to deduct 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.
This measure will support business investment and is estimated to lower taxes paid by Australian businesses by $6.7 billion over the next two years. This measure will support over 3.5 million businesses (over 99 per cent of businesses) employing more than 9.7 million employees.
Supporting apprentices and trainees
The Government is supporting small business to retain their apprentices and trainees. Eligible employers can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage for 9 months from 1 January 2020 to 30 September 2020.
Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice. Employers will be reimbursed up to a maximum of $21,000 per eligible apprentice or trainee ($7,000 per quarter).
Support will also be provided to the National Apprentice Employment Network, the peak national body representing Group Training Organisations, to co-ordinate the reemployment of displaced apprentices and trainees throughout their network of host employers across Australia. This measure will support up to 70,000 small businesses, employing around 117,000 apprentices.
Support for Coronavirus-affected regions and communities
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.
Supporting the flow of credit
The Government, the Reserve Bank of Australia and the Australian Prudential Regulatory Authority have taken coordinated action to ensure the flow of credit in the Australian economy. Timely access to credit is vital for businesses to manage the impacts of the Coronavirus.
• Support for immediate cash flow needs for SMEs
• Quick and efficient access to credit for small business
• Reserve Bank of Australia — Supporting the flow and reducing the cost of credit
• Support for Non-ADI and smaller ADI lenders in the securitisation market
• Australian Prudential Regulatory Authority — Ensuring banks are well placed to lend
Support for individuals and households
The Government is providing financial assistance to Australians to support them through the economic impact of the Coronavirus. This assistance includes the JobKeeper Payment income support payments, payments to support households and temporary early releases of superannuation.
• JobKeeper Payment
• Income support for individuals
• Payments to support households
• Temporary early release of superannuation
• Temporarily reducing superannuation minimum drawdown rates
• Reducing social security deeming rates
For more information on the Australian Government’s Economic Response to Coronavirus visit treasury.gov.au/coronavirus TQ
CORONAVIRUS BUSINESS LIAISON UNIT
The Coronavirus Business Liaison Unit has been created in Treasury to build on existing efforts to support confidence, employment and business continuity.
To contact the Coronavirus Business Liaison Unit, email CoronavirusBusinessLiaison@treasury.gov.au
Australia.gov.au is regularly updated to give you the latest news, updates, and advice from government agencies across Australia. Business.gov.au provides information on financial assistance, eligibility, and timing for the new government support for Australian businesses.
The Treasury provides information on the Australian Government’s economic response to COVID-19 in Australia.
The Department of Health provides information on how the Australian Government is monitoring and responding to the outbreak, how you can help slow the spread of COIVID-19 in Australia and what do if you have symptoms.
Services Australia provides information on how to apply for government payments and services.
The Australian Tax Office provides information on assistance measures available, including, but not limited to, early release of superannuation, boosting cash flow for employers and increasing instant asset write-off.