What the government’s second stimulus package offers employers… and why it’s not all it’s cracked up to be

The federal government came out swinging yesterday and announced part two of its COVID-19 stimulus plan. 

This brings the total stimulus package to $189 billion, which is about 10% of GDP. Basically that means that ScoMo is injecting 10% of Australia’s total economy towards small businesses, jobseekers, the unemployed and retirees.

It’s big.

There were a few key updates that will directly impact small business owners, outlined as follows.

100% cashback on PAYG withholding, up to $100,000 in total

Eligible small and medium employers will be provided with a 100% tax-free ‘cashback’ of up to $50,000 (and a minimum of $10,000) on their PAYG withholding on wages between January 1 and June 30, 2020.

This replaces the previously announced $25,000 cashback.

In addition to this, eligible SMEs will also get a second tax-free, cashback payment of up to $50,000 (and a minimum of $10,000) on their PAYG withholding on wages for the period June 30 to September 30, 2020.

This second payment is calculated as the total cashback credit calculated in the first payment, split evenly over the June 20 to October 20 BAS/IAS lodgement period.

So to summarise, the cashback is now calculated on 100% of PAYGW of your wages, paid in two separate calculation periods.

So, breaking this down.

Payment one

If you have spent more than $50,000 in PAYGW for the six-month period between January 1 and June 30, 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

Payment two

The same total benefit per payment one is paid equally over your BAS/IAS lodgement period between June 30 and September 30, 2020.

Government-underwritten, cashflow loans for SMEs

This measure is a little bit less nuanced, but has the potential to create significant flow-on effects within the economy.

The government will provide a guarantee of 50% 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 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.

While 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-bailout 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 cash rate at 0.25%, debt is currently cheap.

But the problem with debt is that you need to pay it back… and it follows you for life.

What happens when the economy eventually bounces back in three-plus years and interest rates increase again?

This won’t end badly at all.

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