The Federal Government has made its long awaited announcement on the future of JobKeeper. The program will be extended to 28 March 2021, and will lower the payment rates as follows:

• From 28 September 2020 to 3 January 2021 the payment will be $1,200 per fortnight for full-time employees, and $750 for other employees and business participants
• From 4 January 2021 to 28 March 2021, the payment will be $1,000 per fortnight for full-time employees, and $650 for other employees and business participants

The turnover tests will still require a drop of 30% in turnover, however the tests will compare the June 2020 quarter and September 2020 quarters to the corresponding periods in 2019, and both quarters must show the decline in turnover.

From 28 March 2021, it is anticipated that the JobKeeper program will end.

it is estimated that the cost of this extended package will be $16 billion, with $30 billion already paid out to date. This is a large number, but well short of the initial estimates of $130 billion.

Life After JobKeeper – prepare now, prepare hard

A quick analysis of our clients shows that only one-third of those currently on JobKeeper will continue to receive it after 28 September 2020. This is a result of turnovers in June not meeting the 30% decline, and it is further expected that turnover in September will likely increase for some of the remaining businesses so that even more will be ineligible.

Government support is being paid for by Government debt – the budget deficit is expected to be around $184 billion in a year we were expecting a $7.1 billlion surplus, and national debt is expected to balloon to $677 billion by 30 June 2021, compared to the balance of $487 billion at 30 June 2020.

This level of government support obviously cannot continue indefinitely.

So what will be your reality without JobKeeper? 

Trying to stay eligible for JobKeeper
Some businesses will look at the tests and try to manoeuvre their income so that they qualify for the extended JobKeeper – keeping in mind June quarter has ended so it cannot be adjusted. There are also anti-avoidance provisions which are in place for this exact reason.

It is fine to qualify if your business is genuinely affected, however knocking back work and income to qualify for government support has flow on effects.

Getting bank finance
Obtaining finance from the banks is becoming increasingly difficult. Reforms as a result of the Royal Commission, combined with increased lending standards as a result of COVID and the expected economic impact is making it an increasingly more difficulty and lengthy process to get funding. If you need money in two months, you should be applying now to make sure you have a chance of getting it in time.

Banks will not lend against JobKeeper income, so they will exclude amounts received when assessing your ability to service loans. We have heard of instances where incomes have been deliberately decreased to access benefits like early access to superannuation, but then those same people wanted bank funding to access the first home owner grant and the $25k building incentive. What seemed like a good idea at the time came back to bite with no finance available. 

Lost opportunity?
As a business owner, you also need to consider whether deferring income and declining work is a smart business decision. The opportunity might not be there again in 3-6 months.

Unemployment is forecast to hit 9.0% in the December 2020 quarter, which means that employment opportunities and the reduction of JobKeeper is showing the true extent of the impact coronavirus is having on our economy.

The old saying “cash is king” rings as true today as it ever did. Taking on as much work as you can while you can is probably the best idea, as you can’t be too sure what the next 12-24 months will bring. 

Cash management is the key
With that framework in mind, having a buffer and managing cash is going to be the number one thing everyone can do – whether as a business or as an individual.

If solvency is an issue now, then seek advice on what your options are. Various initiatives to delay insolvencies and bankruptcies ends in October, so it is expected there will be a large increase from recent numbers which have been abnormally and artificially low. 

As we always advise – make the decisions now while you have the choice, before someone else takes that choice away and makes the decisions for you.

Stress test
If your business is still running well, but particularly if it is not, then start to look at stress testing your numbers to work out:

• What is the breakeven point of your business? i.e. the income you have to earn to make neither a profit nor a loss, that is, zero profit.
• How much of a fall in income will it take to go from profit to breakeven?
• if you do only breakeven, can you service your debts?
• Have you had debts, rent, payroll tax etc. deferred that will become due in 2021, and can you afford to pay them?
• Do you need to cut costs now to ensure the survival of your business in 6-12 months time?

What if everyone is wrong, and things are ok?
What if they’re not?

If the predictions are all media hype, then the worst that can happen is that you have a much stronger business, and a much stronger financial position to move forward in 2021. 

If they are correct though, you will be prepared and ready for whatever the future brings.

If you have any concerns about your business or financial position, reach out to us to discuss.

If we cannot directly help with a particular issue, we have a network of professionals who we can put you in contact with.

Upcoming Dates 28 July 2020 Make superannuation guarantee contributions for the June 2020 quarter to super funds by this date. 28 July 2020 Lodgement and payment of quarterly June 2020 Instalment Activity Statements  31 July 2020 Make finalisation declaration for staff wages through Single Touch Reporting for employees with 19 or fewer employees 21 August 2020 Lodgement and payment of monthly July 2020 Activity Statements 25 August 2020 Lodgement and payment of quarterly June 2020 Business Activity Statements