The weekend saw more drama and uncertainty as more and more people are impacted by the coronavirus which now has a firm foothold in Australia. What is first and foremost a health crisis has become very quickly an economic crisis with many businesses closing their doors, markets falling at a great rate of knots, the Federal government moving to mandatorily close restaurants, cafes, bars, clubs, cinemas and gyms and State governments moving to shut their borders and close schools. The social reality is looking ugly with messaging on social/spatial distancing, continued panic buying at supermarkets and the big question of a potential lock down.
What we want to examine here is the Government’s announcement of a second round of stimulus to try to curb the economic disaster that is starting to hit home.
The Government announced yesterday [Sunday 22 March 2020] an additional $66.1bn economic stimulus package in response to the coronavirus (COVID-19). The package includes a $550 per fortnight supplement for job seekers (doubling the current payment), a further $750 stimulus payment for pensioners, cash flow payments up to $100,000 (minimum $20,000) to SME employers and charities, regulatory protection for SMEs and directors, early release of superannuation measures, pension minimum draw downs reduced by 50%, and deeming rates cut by a further 0.25%.
This second COVID-19 stimulus package brings the Government’s total package to $189bn (or 9.7% of GDP), when combined with the initial $17.6bn package announced on 12 March 2020, and the $105bn of RBA funding to support lending to SMEs.
Cash payments to SME employers and charities up to $100k (minimum $20k)
The Government said it will provide a tax-free payment up to $100,000 for eligible small and medium sized entities (SMEs), and not-for-profits (including charities) that employ people, with a minimum payment of $20,000. These payments seek to help businesses’ and NFPs’ cash flow so they can keep operating, pay their rent, electricity and other bills and retain staff.
Under the enhanced scheme from the first stimulus package, employers will receive a payment equal to 100% of their salary and wages withheld (up from 50%), with the maximum payment being increased from $25,000 to $50,000. In addition, the minimum payment will be increased from $2,000 to $10,000.
SMEs with aggregated annual turnover under $50m and that employ workers are eligible. NFPs entities, including charities, with aggregated annual turnover under $50m and that employ workers will now also be eligible. This will support employment at a time where NFPs are facing increasing demand for services.
An additional payment is also being made from 28 July 2020. Eligible entities will receive an additional payment equal to the total of all of the Boosting Cash Flow for Employers payments received. By linking the payments to business to staff wage tax withholdings, the Treasurer said businesses will be incentivised to hold on to more of their workers. The payments are tax free and there will be no new forms.
The payments will be delivered by the Tax Office as a credit on activity statements from 28 April 2020. The Government expects 690,000 businesses employing 7.8 million people and 30,000 not-for-profits will be eligible for measures in the stimulus package.
The Commonwealth is also offering to guarantee unsecured loans to small businesses of up to $250,000 for up to three years.
Temporary relief for directors of distressed businesses
The Government will temporarily increase from $2,000 to $20,000 the threshold at which creditors can issue a statutory demand on a company, and the time companies have to respond to statutory demands will be extended from 21 days to 6 months. Temporary relief will also be provided for directors from any personal liability for trading while insolvent. The Corporations Act 2001 will also be amended to provide temporary and targeted relief for companies to deal with unforeseen events that arise as a result of the Coronavirus.
Job seeker supplement of $550 per fortnight
The Government will implement a new temporary Coronavirus supplement of $550 per fortnight, effectively doubling the current payment for job seekers. This Coronavirus supplement will be paid for the next 6 months to both existing and new recipients of the JobSeeker Payment, Youth Allowance jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit. Eligible income support recipients will receive the full amount of the $550 Coronavirus supplement on top of their payment each fortnight.
Further $750 payment for pensioners
In addition to the $750 stimulus payment for pensioners announced on 12 March 2020, the Government will provide a further $750 payment to social security and veteran income support recipients and eligible concession card holders, except for those who are receiving an income support payment that is eligible to receive the Coronavirus supplement.
This second $750 payment will be made automatically from 13 July 2020 to around 5 million income support recipients and eligible concession card holders. Around half of those that benefit are pensioners. The first $750 payment will be made from 31 March 2020 to people who will have been on one of the eligible payments any time between 12 March 2020 and 13 April 2020.
Superannuation early release up to $20,000 over 2 years
The Government will allow individuals in financial stress as a result of the Coronavirus to access a tax-free payment up to $10,000 from their superannuation in 2019-20, and a further $10,000 in 2020-21. Eligible individuals will be able to apply online to the ATO through myGov for access of up to $10,000 of their superannuation before 1 July 2020. You will also be able to access up to a further $10,000 from 1 July 2020 for another 3 months. You will not need to pay tax on amounts released and the money you withdraw will not affect Centrelink or Veterans’ Affairs payments.
To apply for early release, superannuation members must satisfy any one or more of the following requirements:
- you are unemployed; or
- you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
- on or after 1 January 2020:
- you were made redundant; or
- your working hours were reduced by 20 per cent or more;
- or if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.
Eligible members accessing their superannuation can apply directly to the ATO through the myGov website: www.my.gov.au. You will need to certify that you meet the above eligibility criteria. After the ATO has processed your application, they will issue you with a determination. The ATO will also provide a copy of this determination to your superannuation fund, which will advise them to release your superannuation payment. Your fund will then make the payment to you, without you needing to apply to them directly. However, to ensure you receive your payment as soon as possible, you should contact your fund to check that they have your correct details, including your current bank account details and proof of identity documents. Separate arrangements will apply if you are a member of a self-managed superannuation fund (SMSF). Further guidance will be available on the ATO website: www.ato.gov.au.
In terms of timing, members will be able to apply for early release of superannuation from mid-April 2020.
Pension minimum draw down rate reduced by 50%
The minimum annual payment for account-based and similar pensions is calculated as a percentage of the account balance as at 1 July each year. The government has announced that the minimum annual payment will be reduced by 50% for 2019-20 and 2020-21. This measure will benefit retirees by providing them with more flexibility as to how they manage their superannuation assets.
| Age | Current minimum pension drawdown (p.a.) | Proposed minimum drawdown (p.a.) | Example $500,000 (current) |
Example $500,000 (proposed) |
| < 65 | 4% | 2.0% | $20,000pa | $10,000pa |
| 65 – 74 | 5% | 2.5% | $25,000pa | $12,500pa |
| 75 – 79 | 6% | 3.0% | $30,000pa | $15,000pa |
| 80 – 84 | 7% | 3.5% | $35,000pa | $17,500pa |
| 85 – 89 | 9% | 4.5% | $45,000pa | $22,500pa |
| 90 – 94 | 11% | 5.5% | $55,000pa | $27,500pa |
| 95+ | 14% | 7.0% | $70,000pa | $35,000pa |
Social security deeming rates reduced further
On top of the deeming rate changes made at the time of the first package, the Government will reduce the deeming rates by a further 0.25% to reflect the latest rate reductions by the RBA. As of 1 May 2020, the lower deeming rate will be 0.25% and the upper deeming rate will be 2.25%.
As per the table below, for either a single person or a couple with (for example) $100,000 of financial assets subject to deeming, this effectively reduces Centrelink/DVA means testing on $250 per annum of deeming earnings. As the pension reduces by 50 cents per dollar above the relevant thresholds this might result in a modest increase of ($250/26) x 0.50 = $4.80 per fortnight.
| Thresholds | Current rates | $100,000 | Proposed rates | $100,000 | Difference | |
| Single | Up to $51,800 | 0.50% | $259 | 0.25% | $129.50 | $129.50 |
| Over $51,800 | 2.50% | $1,205 | 2.25% | $1,084.50 | $120.50 | |
| $1,464 | $1,214 | $250 | ||||
| Couple | Up to $86,200 | 0.50% | $431 | 0.25% | $215.50 | $215.50 |
| Over $86,200 | 2.50% | $345 | 2.25% | $310.50 | $34.50 | |
| $776 | $526 | $250 |
SME loan guarantee scheme
The Government will establish the “Coronavirus SME Guarantee Scheme” to support SMEs to get access to working capital. Under the Scheme, the Government will guarantee 50% of new loans issued by eligible lenders to SMEs. The Government said this support seeks to enhance the willingness and ability of banks to provide credit to SMEs with the Scheme able to support $40bn of lending to SMEs.
The Scheme will complement the original announcement by the Government to cut red-tape to allow SMEs to get access to credit faster. It also complements announcements made by banks to support small businesses with their existing loans by deferring repayments for up to 6 months. It further supports the Reserve Bank’s $90bn term funding facility for banks, that will reduce the cost of lending, with particular incentives to lend to SMEs. The Government said it will also guarantee up to $20bn to support $40bn in SME loans.
It is important to note that the above measures have not as yet been legislated. The federal parliament is sitting today and potentially Tuesday to get these measures debated. The endorsement of the two packages will be the focus of both the House of Representatives and the Senate. Otherwise that will be it for this week, when four sitting days had been scheduled. The next sitting was meant to be three days for the May 12 budget, but on Friday Treasurer Josh Frydenberg postponed the budget to October to allow more time to gauge the impact of the virus. It means the treasurer will also need to move supply bills in parliament this week to ensure the continuity of government in the 2020/21 financial year.
We’ll continue to watch for the legislated measures and communicate as soon as they receive assent. Please do not hesitate to contact the team with any questions.