'Businesses will close': RSM
Multinational accounting firm RSM says thousands of small businesses across the country are likely to collapse as a result of the COVID-19 pandemic, as government stimulus packages fail to address the financial challenges faced by a large number of affected operators.
The federal government last week announced a $17.6 billion suite of measures designed to keep Australia’s economy from falling into recession, with tax relief and cash flow for small businesses pitched as highlights of the package.
But sole traders, which make up 61 per cent of Australian businesses by number according to the Australian Small Business and Family Enterprise Ombudsman, are ineligible for cash flow assistance of up to $25,000 because it is only available to businesses that pay salary and wages.
Western Australian state government stimulus measures, announced this week, also provide no relief to sole traders, with cash payments also only available to businesses that pay payroll tax.
RSM Australia associate director Tracey Dunn said it appeared the stimulus packages had been designed to keep the economy going and keep people in jobs.
“It’s not there to provide support to households and individuals to cope with the impact of the coronavirus," Ms Dunn told Business News.
“It is only employers really, and that might be small- to medium-sized entities, that will benefit from cash payments.
“We will see business closures.
“I have a lot of friends and clients who work in small business and they don’t pay themselves a salary and they may not have employees.
“They are concerned because their revenue is down and their immediate future is uncertain.”
Ms Dunn said while sole traders would be most affected, family businesses that operated through trusts would also feel the impact of a slowing economy.
“They might have personal services income through a company but they are not reporting salary wages in instalment activity statements or business activity statements," she said.
“We don’t have any information at the moment as to whether they will be eligible for this cash boost, because they don’t report their wages until after the end of the financial year.”
Ms Dunn said the federal government was set to announce a further round of stimulus in coming days, but said it must act urgently.
“There is a huge amount of fear and uncertainty, and you have got people who just don’t know whether they are going to be able to continue to work, whether they will have income, or how they are going to meet the costs of looking after their children," she said.
“It is absolutely essential that the government makes an announcement now, not in three days’ time, not next week.
“Even if it’s an idea of ‘this is what you can expect and the detail will come’, just to give people some level of certainty or assurance that they are going to be ok.”
Ms Dunn said the federal government needed to consider moving past stimulus to offer real support to households and business.
“There needs to be relief with mortgage payments and with rents, and it may be that the banks need to step in there to provide some sort of relief so that landlords who have mortgage repayments that they need to meet can offer rent relief to their tenants," she said.
“We need more relief with household bills. We saw yesterday an announcement from the state government that they are freezing prices, but that’s not much help because households will still receive bills.
“We do need more support payments to help stimulate the economy.
“I would like to see income tax cuts brought forward, so that those people who do have higher incomes, who aren’t so impacted, people in professional services, they can spend the money that they have in their pocket from income tax cuts.”
The Master Builders Association of WA also urged the state government to consider more stimulus to ensure businesses operating in the construction sector remained viable.
Master Builders WA executive director John Gelavis said waiving stamp duty and increasing first homeowner grants to $40,000 until June 30 would go a long way to ensuring confidence remained in the housing construction sector.
“It would also help to activate the federal government’s $17.6 billion package,” he said.
“Builders will be encouraged to take advantage of the expanded instant tax write-off and investment incentives if they are confident they will have a pipeline of work.
“Coronavirus has not yet hit us hard, but our industry is bracing for shortages, delayed delivery of some imported building products and a potential slowdown.
“Subcontractors and small building businesses face cash flow problems, with knock-on effects likely such as more insolvencies and fewer apprentices.”
Mr Gelavis said the state government could also fast-track social and transport infrastructure spending to stimulate the construction sector.
“To give an immediate kickstart to economic activity the government could bring forward budgeted expenditure on current projects to accelerate construction activity now and over the remainder of the year," he said.
“This would provide an immediate boost to confidence.”
Chamber of Commerce & Industry chief executive Chris Rodwell, however, praised the state government for its stimulus measures, particularly in regards to the lifting of the payroll tax threshold to $1 million.
"The best way to stimulate the economy is always to remove constraints on business growth and investment, which supports household incomes and better enables the retention of workers," Mr Rodwell said.
Easing the burden of payroll tax provides a boost for the whole economy, making it easier and cheaper for businesses to grow, and critically, to retain staff.
"Local operators in vulnerable sectors face the double hit of declining visitor numbers and the prospect of domestic consumer spending being withdrawn.
"Particularly vulnerable sectors include travel services, retail shopping, accommodation, education, cafes, restaurants and bars.
"Supporting the cash-flow of WA businesses better enables them to preserve jobs in these difficult and uncertain times. That is rightly the current policy focus of both the state and federal Governments."