The federal government has said its second stimulus package will help hundreds of thousands of businesses stay afloat during the coronavirus lockdown.
But economists have said the cash won’t reach businesses fast enough to prevent a tsunami of closures – and tax experts have warned the help on offer has not been properly explained.
The key pillar of the government’s $66 billion support package on Sunday was the promise of tax refunds worth up to $100,000 for 690,000 small and medium-sized businesses.
Costing the federal budget $31.9 billion over the forward estimates, the policy was the single largest measure in the second round of stimulus.
Treasurer Josh Frydenberg said it would throw a lifeline to the hundreds of thousands of businesses that form the backbone of the Australian economy, but Luke Mutton, owner of Melbourne-based cafe-wine bar Superbus, couldn’t disagree more.
Having already laid off all but one member of his staff, and with just over $10,000 in rent due to the landlord on April 1, Mr Mutton was scrambling to find a way to stay open on Monday.
The second stimulus package had only been announced on Sunday and was hours later followed by orders from the federal government to shut down all non-essential services.
“All I am trying to do is cover wages. There is no money for rent, for bills, for food, for wine, for beer, for maintenance,” he told The New Daily.
After reading in the Treasurer’s fact sheet that the payment “will be delivered by the ATO (Australian Taxation Office) as an automatic credit in the activity statement system”, the 48-year-old figured the money could only be used to pay off any future tax payments.
The Tax Institute’s senior tax counsel Bob Deutsch said that wasn’t true, but conceded the government’s explanation was overly complicated.
Mr Mutton is nonetheless worried the financial assistance will arrive too late to be of much use.
“I am infuriated with the government’s repeated line of ‘we are giving small businesses cash’. Stop saying that. It is offending the hospitality industry,” Mr Mutton said.
“You are not giving cash, it is a credit off future tax payments in a minimum month’s time … and what use is that when we have let all our staff go and/or closed.”
‘No strings attached’
The Tax Institute’s Professor Deutsch, who is also a professor at the University of New South Wales, wants affected employers to understand this stimulus package will help them more than they might realise.
Contrary to what Mr Mutton and others may have deduced from the fact sheet, Professor Deutsch said “there are no strings attached to this money” and that employers will be able to spend the money however they like.
The Department of Treasury confirmed to The New Daily the money will not be credited towards future tax payments.
“The ATO will automatically apply the credit to the activity statement account … that will reduce the amount owing and, in some circumstances, will trigger a refund,” a spokesperson said in a statement.
“The ATO will generally pay the amount of the refund into a nominated bank account … so there will not be any amount left to credit against future tax payments.”
Professor Deutsch said: “A lot of companies I think will be quite surprised about how much assistance they will receive when they lodge their first BAS (Business Activity Statement).”
For the first payment, business owners will be eligible to receive three times the amount recorded in their BAS as their employee tax.
“A small business that has and is still holding onto half a dozen employees who are paid collectively perhaps half a million dollars between them … the tax bill in relation to what is paid to the employees will exceed $100,000,” Professor Deutsch said.
They will, therefore, receive the maximum $100,000 from the government – with the payments spread between March and September.
“There’s going to be one tranche that is going to be paid across March, April, May and June, up to June 30. That’s up to a maximum of $50,000. And the second tranche will be payable from July to September, another $50,000,” he explained.
Even still, the first payment isn’t until April 28, meaning many business owners will struggle to survive the virus-induced lockdown.
Mr Mutton said a freeze on commercial rents would give his business the best chance of survival.
For now, he said he feels like “the government is handing me a sail while the boat is on fire”.
“If they really want to put out the flames, freeze commercial rents and pay for staff wages,” he said.
Economist warns payments won’t arrive in time
Market Economics managing director Stephen Koukoulas said the Coalition’s support measures were good policies but would take too long to reach those in need.
“The money needs to go out ASAP,” Mr Koukoulas said.
“The biggest problem is that they’re so slow.”
The economy hit the wall last week yet the support payments won’t be hitting people’s pockets for another five weeks, putting many businesses and not-for-profits under enormous stress, he said.
Mr Mutton, who registered for the JobSeeker payment (formerly Newstart) on Sunday night, said he hoped to stay open as a cafe during the day making takeaway sandwiches and salads.
But with Melbourne CBD now a ghost town, he is unsure if such an approach is sustainable.
What’s certain is that he can’t afford to rehire the staff he was forced to let go, including bar manager Lincoln Johnston, who spent from 7.45am until 2pm on Monday trying to get through to a Centrelink operator, only to be told he’ll have to visit a local branch to start the Jobseeker application process.
Worst comes to worst, the 28-year-old can turn to family and friends for financial support.
But Mr Johnston said he was frustrated that “people who might not have that kind of support … may have to risk exposing themselves to COVID-19 just to get the ball rolling on their unemployment benefits”.