When Australia’s real pain will start
In the dark days of late March, the situation was dire for many Australians. Lines were out the door and around the block at Centrelink offices across the nation and there were predictions that as many as 3.4 million people faced the prospect of becoming unemployed in the coming months.
As a result of the severity of the challenges facing the economy, the Morrison government instituted an unparalleled level of support for households and businesses. The JobKeeper program was introduced providing $750 per employee per week, to any business that could prove a large reduction in overall turnover, with different criteria for small and large businesses to qualify.
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According to Treasury estimates, in the following months, over 900,000 businesses and more than 3.5 million workers were supported by the JobKeeper program. The JobSeeker coronavirus supplement was also introduced, effectively doubling or more fortnightly unemployment payments for recipients.
At a cost of $70 billion over six months, the JobKeeper program has provided over $2.6 billion in wage subsidies each week to qualifying businesses. In fact, JobKeeper ended up providing so much extra cash to businesses, that company profits for the June quarter jumped 15 per cent. This occurred despite the fact that the June quarter was the height of the various lockdowns and restrictions across the nation.
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But in the coming weeks, this enormous level of government assistance will begin to come to an end. In eight days the scaffold of support for businesses provided by JobKeeper will start to be gradually removed.
This will mean hundreds of thousands of businesses are forced to stand on their own two feet for the first time in six months and approximately 1.3 million workers will lose access to support from the JobKeeper program.
According to a survey of businesses performed by research firm Digital Finance Analytics (DFA), small and medium business owners are quite guarded about their prospects going forward. With around one in four of those surveyed stating, that given the circumstances, they did not expect to be trading in six months' time.
"SME's (small and medium enterprises) are facing challenging conditions across the country. But some states are suffering more than others," said DFA principal, Martin North.
The ACT is performing quite well due to the support provided by the public sector in Canberra. But businesses in Victoria, and particularly Melbourne are suffering badly as a result of the second round of lockdown."
In Victoria, almost 35 per cent of businesses surveyed stated they did not expect to be trading in six months' time, compared with a national average of 25 per cent.
The challenges faced by businesses vary widely between different industries. In the transport and warehousing sector, businesses are faring relatively well, with less than 10 per cent saying they do not expect to in business in six months.
In other industries however, things are far more severe. With well over half of businesses in arts and recreation saying they'd didn't expect to be around in six months. Half of businesses in education and training and accommodation and food services also predicted a grim future.
A recent analysis of employment by consulting firm Taylor Fry suggests that their concern is very much warranted.
Their analysis showed that Aussie small businesses (those employing fewer than 20 staff) had lost 8 per cent of jobs, with medium businesses (those employing 20 to 200 staff) had lost 7.2 per cent of jobs since the beginning of the pandemic.
Victorian businesses are doing it particularly tough, with the data from DFA, Taylor Fry's analyses also showed that small and medium businesses in the state recording a huge 12.6 per cent drop in employment.
With the DFA survey covering various demographics from locale to industry, North shared that he was particularly concerned for the future of Melbourne's CBD, stating "it may become something of a wasteland" with so many businesses at risk closing their doors for good.
According to North, the key turning point for Victorian businesses was the reimplementation of the second lockdown.
"Up until the lockdown was reintroduced in Victoria, things were looking pretty similar across the various states and territories. But since then, businesses have been decimated by a second round of forced closures due to the virus," said North.
"The issues in Melbourne have become more systemic, with many businesses in key supply chains at risk."
Given small and medium businesses employing approximately 68.3 per cent of workers, the potential closure of so many businesses could be a devastating blow to an already struggling economy.
When asked how many businesses would end up closing their doors for good, North replied.
"With all the variables, it's hard to predict exactly how things are going to play out. But business owners are generally reasonably realistic about their prospects and have a fairly accurate sense of where their business is at."
In the next nine months, businesses face a challenging transition to the long term 'COVID Normal', as the various support mechanisms are reduced and finally removed.
As the insolvency moratorium, JobKeeper and the JobSeeker coronavirus supplement are stripped away, the true state of the economy and business balance sheets is finally revealed.
What kind of damage we will find when the economic bandages are finally pulled off remains to be seen and is a matter of great debate among analysts and economists.
But if the views of businesses from DFA's survey prove to be accurately representative of the broader business community, the situation for the economy may be more dire than the current consensus suggests.
Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator
Originally published as When Australia's real pain will start