Strange days
The next few months are crucial. Here's what to watch.
Australia has entered arguably the strangest recession on record as economists wait for the other shoe to drop.
The pandemic and its associated lockdowns triggered a record slump in privately generated earnings as the Government flooded the economy with stimulus payments.
When economic data for the June quarter was released it revealed some unusual figures. Households tightened their belts, with consumption crashing about 12 per cent in the three months to August. But because of huge stimulus payments such as JobKeeper and JobSeeker, average household income actually rose by around 2.2 per cent. For unincorporated businesses - sole traders and partnerships - household earnings jumped 22 per cent.
Despite this rise, consumers were either unwilling or unable to spend their extra cash. The amount of disposable income going into savings leapt from around 6 per cent in March to around 20 per cent for the June quarter. Savings were also boosted by consumers accessing the early release of superannuation scheme. This scheme has seen over $33B released in an attempt to stimulate the economy.
It means there is money in pockets, but consumers are likely too scared to spend. And the economic impact of Victoria's lockdowns are still coming down the line. The next few months will be crucial, with changes to watch in key areas.
Consumer sentiment
Recent success containing the virus in Victoria and NSW has produced a rebound in consumer confidence to near pre-COVID levels.
The Melbourne Institute and Westpac Bank's monthly Consumer Sentiment Index jumped 18 per cent in September to reach its highest level since February. On the question on whether it was a good time to buy a major household item, sentiment was up 16 per cent to 105 points. A score above 100 on the index indicates more people are optimistic than pessimistic.
In releasing the monthly data, Westpac Chief Economist Bill Evans said it appeared consumer confidence was returning to normal levels but was contingent upon continued containment of the virus and the re-opening of economies.
Lending
In moves to get the credit taps flowing and boost spending, the Federal Government is proposing to amend responsible lending obligations that it says have led to risk aversion and unacceptably lengthy approval processes because lenders have to confirm information supplied by borrowers. Proposed changes put the onus on borrowers, switching from a 'lender beware' to 'borrower responsibility' model of credit assessment to speed loan approvals. The proposals are expected to go to public consultation shortly.
Six-month loan deferrals taken up by 105,000 SMEs earlier this year are also winding up this month. The Australian Banking Association said about 36 per cent of businesses had already started making some level of repayment, but businesses still struggling may be able to restructure, or defer for a further four months.
JobKeeper 2.0
The scheme has now been extended through to 28 March 2021, with reduced payments to eligible employees and sole traders and sole traders. Businesses are also required to demonstrate an actual, rather than projected, drop in GST turnover year-on-year for the June and September quarters to qualify for the new payments.
There are now two tiers of JobKeeper payments, with staff typically working less than 20 hours a week to receive $750 a fortnight (compared to $1,500 previously) and staff on more than 20 hours to receive $1,200, down from $1,500. From January, these drop to $650 and $1,000 respectively.
Notably, legacy employers - businesses that no longer qualify for JobKeeper, but can still demonstrate a 10 per cent decline in turnover - are still able to use the Fair Work Act JobKeeper provisions. This allows employers to direct staff previously on JobKeeper to work fewer hours and change duties or work locations.
Insolvencies
With modelling estimating 240,000 Australian small businesses are at risk of failure, a looming wave of insolvencies is shaping as one of the most significant risks to the economy. The Federal Government has flagged proposed changes to insolvency laws that it hopes to have in place by January 2021, when temporary measures to delay wind-ups are withdrawn.
Treasurer Josh Frydenberg has said the proposed shake-up of insolvency law would allow small businesses with debts under $1 million to follow a 'debtor in possession model', rather than losing control to an administrator. This would allow the owner to continue running the company while a debt restructuring plan was developed and voted on by creditors.
If liquidation is unavoidable, the Government aims to make the process of winding down faster and cheaper, with a proposal to waive registration fees for liquidators until 2022.
In the meantime, an extension to temporary measures allowing stressed businesses some breathing space to trade through the crisis will end on December 31. These include lifting the threshold at which creditors can issue statutory demands from $2,000 to $20,000, and extending the time to respond to demands from 21 days to six months.
Rent relief
Businesses negotiating with landlords should take note of a recent NSW Supreme Court decision that extended rent relief provisions six months beyond the expiry of state legislation.
The court ruled that although NSW's mandatory Code of Conduct for Commercial Leases would lapse on October 24, landlords for footwear retailer Sneakerboy could not raise rent or evict the retailer until at least April 30, 2021. This was because a provision in the code allowed for relief measures to continue for a reasonable recovery period, which the court deemed in this case would be at least until the end of April next year.
As COVID-19 Commercial Leasing Codes of Conduct have been enacted in all states and territories around the country, lawyers believe it has national implications for SMEs that need to extend relief provisions.
Victoria
Businesses and sole traders in hard-hit Victoria can now apply for a raft of targeted grants that form part of the Victorian Government's $3 billion Business Resilience Package to help cover expenses and get back on their feet in the wake of the lockdown.
Funding will also help food and beverage businesses adapt to a new COVID-normal, such as converting outdoor spaces like rooftops and courtyards to commercial areas.
Go global
The NSW Government has announced a $12 million Going Global Package with grants of $10,000 to help SMEs trying to access overseas markets. The grants cover 50 per cent of eligible expenses up to $10,000 that include developing an international e-commerce platform, translating website content for an overseas market and delivering training content online.

The information provided in this document is a selection of information taken from publicly available sources and is current as at the date specified in the information. It does not contain all information or all public websites that may be relevant to our brokers and their customers. Please note AFG does not provide tax, legal or accounting advice. Any information provided is of a general nature and/or for illustrative purposes. It does not take into account our broker's or their customer's objectives, financial situation or needs and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. AFG encourages our brokers and their customers to consult their own tax, legal and accounting advisors before engaging in or considering the appropriateness of any transaction.
 
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