On 23 July, Treasurer Josh Frydenberg and Finance Minister Mathias Cormann revealed the economic impact of the novel coronavirus. What was revealed was that despite Australia performing better than many other developed countries in the world, the Federal budget will receive an estimated deficit of $85.8 billion in 2019-20 and $184.5 billion in 2020-21. 

In 2020, the Australian economy is expected to be impacted by its largest annual fall in economic activity on official record, while the world experiences the most severe economic crisis since the Great Depression of the 1920’s and 30’s. 

The Victorian Chamber has advocated for an extension of support to business in order to stem the growing number of business closures and job losses triggered by the return to stage three restrictions across metropolitan Melbourne and surrounding areas.  

“We have known all along that businesses will play a key role leading the recovery out of the Covid-19 crisis. Today, we have an indication how big a mountain that is,” said VCCI Chief Executive Paul Guerra. 

What is an economic update? 

Each year, the Federal Government release a Federal Budget which outlines the economic and fiscal outlook for the year ahead. These Budgets outline where the government plans to spend public funds and generate income – primarily through taxes.  

Due to the global pandemic and the damage it continues to cause on the Australian economy, the Fedeal Government has presented an interim Economic and Fiscal Update (its first since December 2019) while postponing the official Budget to 6 October. 

These budgets are critical for businesses as they outline what incentives will be available and what costs businesses may need to manage. 

Economic situation 

Due to the uncertainty of the COVID-19 pandemic and resulting lockdowns, the Federal Government has put forward estimates of what the expected impact of the coronavirus will be on the Australian economy. 

The Federal Government is anticipating for Australian GDP to fall by 3.75 per cent in the calendar-year of 2020, before rising by 2.5 per cent in 2021. In financial-year terms, real GDP is forecast to fall by .25 per cent in 2019-20 and 2.5 per cent in 2020-21. 

Net debt is expected to be $488.2 billion (24.6 per cent of GDP) at 30 June 2020 and increase to $677.1 billion (35.7 per cent of GDP) at 30 June 2021. Although this is high by historical standards, it remains low compared to many countries including Japan, Germany and the USA. 

The rising levels of job losses has been a significant focus for the Federal Government as unemployment is set to peak at 9.25 per cent in the December quarter. The Federal Government claims that fiscal measures are estimated to have lowered the peak of the unemployment rate by around five percentage points. 

It is expected that as restrictions ease across the country from September onwards, the Australian economy will begin to revitalize, but will remain below pre-COVID levels for years to come. 

Due to the resurgence of COVID-19 in Victorian and subsequent restrictions, the outlook for Victoria is more severe compared to the rest of the country.  

New separate modelling released by the Victorian Government shows that real Gross State Product (GSP) is likely to fall by 5.25 per cent in calendar year 2020 and, in the September quarter, Victoria’s unemployment rate could rise to 9 per cent with job losses peaking at around 200,000. 

Support for businesses 

With the introduction of lockdown restrictions, it was known from the offset that many businesses across Australia would be severely impacted, which is why the Federal Government put in place a series of grants and schemes to support businesses through this pandemic.  

According to the Federal Government’s Economic and Fiscal Update, Federal support in response to the COVID-19 pandemic will lift the real GDP by around .25 per cent in 2019-20 and is estimated to increase real GDP by around 4.25 per cent in 2020-21. 

For a full, comprehensive list of all support measures that have been put in place by the State, Federal and Local governments to assist Victorian businesses, visit the COVID-19 Resources page of the VCCI website. 

JobKeeper

JobKeeper is a payment supplement available to staff and employers that have been severely impacted by the COVID-19 pandemic.  

Thus far, the Fiscal and Economic Update has revealed the JobKeeper has supported 960,000 business and for than 3.5 million individuals across Australia. The program is expected to cost $85.7 billion over its lifetime. 

Eligible businesses can currently claim $1,500 per staff member, but this will be changed as of 28 September where ‘JobKeeper 2.0’ will introduce a tiered system where staff who work more or less than 20 hours per week will receive a different amount. Under JobKeeper2.0, those who work less than 20 hours per week can receive up to $750 per fortnight, where full-time workers will receive $1200. 

The Federal Government has announced that they plan to reduce these amounts again on 4 January to $650 per fortnight for part-time workers and $1000 per fortnight for full time workers. 

Visit the Australian Tax Office’s website for more information.  

Supporting Apprentices and Trainees (SAT) Wage Subsidy 

On 16 July, the Federal Government announced a support package to assist small businesses employ and retain apprentices and trainees. It was announced that eligible employers could apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage paid during the 9 months from 1 January 2020 to 30 September 2020.  
$1.5 million was allocated to extending the SAT Wage Subsidy – expanding the eligibility to medium sized businesses (with up to 199 staff) and extending the time the program is open to 31 March 2021. 

The Fiscal and Economic Update has revealed that the program has so far supported 48,000 employers and 83,000 apprentices and trainees, totaling $377.6 million. It is estimated the JobTrainer scheme will support around 340,700 new training places across Australia.   

Claims from small businesses are now open, while claims from medium-sized businesses will open on 1 October 2020. Final claims for payment must be lodged by 30 June 2021. 

Visit the Department of Education, Skills and Employment’s website for more information. 

JobTrainer 

Following the Federal Government’s JobKeeper, Job Seeker and JobMaker schemes, JobTrainer was also announced on 16 July where the Federal Government committed $500 million (plus $500 million from state governments) to provide access to low-cost and free training courses.  

In partnership with the states and territories, Australians will have access to free, or low cost, training places in areas of identified skills needs through the establishment of the JobTrainer fund. 

Visit the Department of Education, Skills and Employment’s website for more information. 

The Coronavirus Small and Medium Enterprises Guarantee Scheme 

As part of the road to recovery out of the COVID-19 pandemic, the Federal Government has partnered with some of Australia’s largest financial institutions to allow small and medium-sized businesses (SMEs) access loans to stay afloat during the pandemic and beyond.  

With a cap of $40 billion in loans, the original scheme allowed businesses to borrow up to $250,000. The scheme was revised and now allows up to a loan size of $1 million per borrower, as well as now offering a five-year loan term, up from three years.  

Visit the Department of Treasury website for more information.  

Moving forward 

The Economic and Fiscal Update has confirmed the COVID-19 pandemic has pushed the Australian economy into recession, with the nation’s real GDP expected to have fallen by seven per cent in the June quarter, which would be the largest quarterly fall on record. 

Looking ahead, there is some cause for optimism. Real GDP is forecast to increase by 1.5 per cent in the September quarter, much thanks to a recovery in household consumption, partly offset by restrictions in Victoria as the state navigates its second outbreak. 

The nation’s economic activity is expected to recover over the forecast period (2020-21), assuming uncertainty about the coronavirus and the economic outlook reduces, restrictions ease and household incomes recover.  

Globally, an economic recovery is expected in 2021, as countries ease containment measures and the operation of businesses starts to normalize, with global growth forecast set at 5 per cent.

However, the global recovery from the pandemic is expected to be protracted, with the virus expected to continue to remain a threat for the foreseeable future. 

Help and support 

For more information about the resources available to your business, please visit the COVID-19 Resources page of the VCCI website. 

To help all businesses in Victoria during these difficult times, the VCCI is offering free memberships to all new members. Click here to enquire about obtaining a free membership or call 03 8662 5333.