On the 22nd of March, the Australian government declared plans to implement a second economic rescue package worth $66bn – with the aim of minimising the potential economic fallout from the coronavirus. This comes after an initial $17.6bn package and over $100bn spent on measures to avoid credit freezes from banks.
While there will be a delay before these measures take full effect, ultimately, they will help in achieving a flow of money to households and through small to medium sized businesses.
These are the measures that are being implemented:
Enhancing the instant asset write-off
The threshold of the instant asset write-off is being increased from $30,000 to $150,000. Its range is also being expanded to include businesses with an overall annual turnover of below $500 million, up from the previous $50 million limit.
It is a necessary policy. However, its effect will be limited as businesses may not have the money to invest in assets – nor the incentive to do so with the current unstable position of the economy.
The policy will apply from 12th of March until 30th of June 2020 for all new or second-hand assets used or installed within this period.
Boosting cash flow for employers
As part of the most recent package, the government will provide up to $100,000 to entitled small and medium sized businesses. This will extend to not-for-profits organisations who employ people at a minimum salary of $20,000.
This is essential in protecting the economy as it will help businesses to continue operating whilst retaining their staff and paying the required bills.
Up from 50% – Employers will now receive payment equal to 100% of the withheld tax from their employees’ salary and wages. There will be a minimum payment of $10,000 and a maximum of $50,000.
Furthermore, an additional payment will be given to employers for the July-October 2020 period. This will be equal to the total boost of cash flow payments they have received until that point. Altogether, eligible businesses will receive a minimum of $20,000 and up to $100,000 under this policy.
Eligibility
To be eligible, both businesses and not-for-profits organisations must be earning below the $50 million aggregate annual turnover threshold. Eligibility will be based on the previous year’s earnings.
These payments will be available only to entities established before the 12th of March 2020. For not-for-profits organisations – date of registration is not a factor when considering eligibility. This is to reflect the amount of new charities that may register in response to the coronavirus.
For the additional payment, scheduled for the period July to October 2020, employers must continue to be active. Both the initial and additional payments will be paid in instalments through automatic credits in the activity statement system.
These payments will be vital in keeping many businesses afloat during the recession that is to come. Additionally, it means that the recovery will come from a stronger foothold.
Temporary Early Release of superannuation
Individuals who have had their income affected by the coronavirus will be entitled to access up to $10,000 of their superannuation from 2019/20, and an additional $10,000 from their 2020/21 fund. Tax will not be applied to the money released and it will not influence their Veterans’ Affairs or Centrelink payments.
In terms of timing – people will be given access to their superannuation funds from mid-April 2020. After this, they will be able to access the funds for a second time after the 1st of July 2020.
Eligibility
To be eligible for early release, one or more of the following conditions must be met:
You are in unemployment
You’re entitled to receive job seeker payment, youth allowance for jobseekers, parenting payment (includes single and partnered payments), special benefit or farm household allowance.
On or after the 1st of January, either: you were made redundant, had your working hours reduced by 20% or more, you are a sole trader who had their company suspended or experienced a decrease in turnover of 20% or more.
From mid-April, eligible people will be able to apply through mygov and they will need to confirm they meet the above criteria.
While this will free up funds for those with access to the scheme, there are potential consequences to consider.
For one, the reduction of accumulated superannuation by up to $20,000 of those who will use the drawdown. This is especially true for those who are eligible because they are likely to already have low to moderate balances in their superannuation fund.
Temporary reduction of superannuation minimum drawdown rates
Lastly, the government is to temporarily reduce the superannuation drawdown requirements for account-based pensions and similar services.
It will be a 50% reduction for 2019/20 and 2020/21. This measure seeks to help retirees by providing them with greater flexibility over the management of their superannuation assets.
Further to the initial reduction in deeming rates, the government will reduce the rates by another 0.25%. This is to reflect the most recent rate reductions by the RBA.
From the 1st of May 2020, the upper deeming rate will be at 0.25% with the upper rate at 2.25%. This policy is estimated to benefit 900,000 recipients of income support, including pensioners.
Will these measures be enough?
Overall, these are welcome changes and the economic measures to be introduced will be essential in supporting growth and resurgence during this period. On the other hand, the policies could be slow to affect the economy and are arguably not big enough.
The government is aware of this and has reassured the public that there will be more support to come. Australian PM Scott Morrison has commented that the first two packages were aimed at those who are going to feel the initial blows. He went on to state “There will be more packages and more support” which will help to put people at ease.
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