‘Zombie’ businesses with no hope of survival are eating valuable resources and jeopardising Australia’s economic recovery.
And if government support programs aren’t redesigned to account for the swelling horde of undead employers, countless Australians will face a devastating blow to their income.
The term ‘zombie’ business refers to firms that should be shuttered, insolvent and in administration – yet are still legally trading.
They were created by the economic witchcraft of federal government’s coronavirus support packages – specifically JobKeeper wage subsidies and changes to insolvency laws.
And so far, these zombie businesses have been benign – and even beneficial – according to CreditorWatch chief executive Patrick Coghlan.
“What’s happening at the moment was necessary, because it’s not just about keeping businesses going, it’s about getting money to the individual,” he said.
That keeps money moving through the economy.
The problem is these businesses have “no future” once government support is removed, Mr Coghlan cautioned.
And when their life support is switched off on September 27 the zombies will collapse, leaving their employees out of a job.
Data from CreditorWatch shows the number of businesses falling into administration this year lagged 2019 by a bit over 30 per cent in April and May.
That suggests roughly 600 businesses that should have collapsed already this year have not, and by September that number could be closer to 2000.
Although that means 2000 businesses have continued to keep employing workers and paying their wages, Mr Coghlan said it can’t continue indefinitely.
That’s because keeping them alive is making it difficult for government and lenders to focus on businesses that will survive, grow and employ more Australians.
A new strategy is needed to lay the zombies to rest, without hurting the people they employ.
“Throwing good money at bad businesses is just not an option,” he said.
“We’ve done it, and maybe we can extend it for a few months, but eventually we have to turn off that artificial stimulus.”
Zombie business employees face severe income cuts
The JobKeeper program currently supporting these businesses is due to end on September 27.
That date coincides with the date JobSeeker unemployment benefits are slated to return to their pre-coronavirus level of $550 per fortnight from the current, ‘turbo-charged’ $1100 per fortnight.
For unemployed Australians, that will mark a 50 per cent drop in income.
But for those receiving a full $1500 JobKeeper payment, being forced onto JobSeeker marks a two-thirds drop.
With thousands of workers on the books of doomed zombie businesses, September will likely drive a big spike in unemployment, Grattan Institute household finances program director Brendan Coates said.
And the victims will sadly be in the demographic that sees their income drop by roughly 60 per cent.
“You’ve got this huge chunk of money about to come out of the economy pretty quickly, and that’s the big problem,” he said.
Instead, Mr Coates told The New Daily government needs to consider extending the JobKeeper program – but only to businesses who need it, and only until the end of December.
Meanwhile, Mr Coates said JobSeeker payments should stay at $1100 for a few months after that, gradually tapering down to a smaller rate.
These changes to government’s support programs will keep a lid on unemployment and ensure money is still circulating through the economy.
At the same time, workers who face joblessness will not be forced from $1500 a fortnight to $550 a fortnight in the space of one day, easing their transition as they look for new work.
“One of the problems with JobKeeper is that it’s great at putting the economy into deep freeze, but not good when you’re thawing it out,” he said.
You’re tying workers to a firm even if that firm is no longer viable.
A gradual tapering, rather than an abrupt ‘cliff’, will better enable that transition without hurting workers’ wallets, or ‘aggregate demand’.
That might require government to spend more money on both programs than they currently expect, but the results will be worth it, Mr Coates said.
“The risks of doing too much are less than the risks of doing too little,” he said.