WEEKLY E-MAIL

17 March 2020

GOVERNMENTS RESPOND TO CORONAVIRUS (COVID-19)

By Nicola Beswick

In response to COVID-19, Central Banks and Governments have acted to support the liquidity of the financial system and the stability of the broader economy.

In the US, the Federal Reserve effectively reduced interest rates to zero and promised to boost its bond holdings by at least USD 700 billion. In Australia, the RBA recently lowered interest rates to 0.5%, with a further rate reduction expected in April, if not sooner.

The Federal Government last week also announced its economic response to COVID-19 in the form of a $17.6 billion economic stimulus package. The package has been marketed as a measure to protect the economy by maintaining confidence, supporting investment and keeping people in their jobs.

It is expected that an appropriate package of Bills will be introduced into Parliament in the final sitting week in March 2020 for urgent consideration and passage.

The Key Tax Measures include:

• From Thursday 12 March 2020, the instant asset write-off threshold has been increased from $30,000 (for businesses with an aggregated turnover of less than $50 million) to $150,000 (for businesses with an aggregated turnover of less than $500 million) until 30 June 2020.
• A time-limited 15-month investment incentive (through to 30 June 2021) which will operate to accelerate certain depreciation deductions.
  
  This measure will also be available to businesses with a turnover of less than $500 million, which will be able to immediately deduct 50% of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset’s cost.
  
  As announced, this measure is proposed to only apply to new depreciating assets first used, or installed ready for use, by 30 June 2021.
• Tax-free payments of up to $25,000 for eligible small and medium businesses (i.e., with a turnover of less than $50 million that employ staff) based on their PAYG withholding obligations.
• Tax-free payments of $750 to social security, veteran and other income support recipients and eligible concession cardholders. It is estimated that around half of those who will benefit will be pensioners. These payments will commence being automatically made from 31 March 2020.
• Administrative relief from the ATO for some tax obligations for people affected by the Coronavirus outbreak, on a case-by-case basis. Additionally, the ATO is setting up a temporary shopfront in Cairns within the next few weeks with dedicated staff specialising in assisting small business and is currently considering further temporary ‘shop fronts’ and face-to-face options.

In addition to these key tax measures, the Government has also announced additional economic stimulus measures including:

• Wage subsidies to support the retention of apprentices and trainees – employers with less than 20 full-time employees may be entitled to apply for Government-funded wage subsidies amounting to 50% of an apprentice’s or trainee’s wage for up to nine months from 1 January 2020 to 30 September 2020. The maximum subsidy for each apprentice/trainee is $21,000.
  
  Importantly, where an employer is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice. It is proposed that employers will be able to register for the subsidy from early-April 2020.
• Assistance to severely affected regions – The Government has also committed to set aside $1 billion to support areas and communities that have been disproportionately affected by the economic impacts of the Coronavirus, including those heavily reliant on industries such as tourism, agriculture and education.

With these measures, the Morrison Government plans to write off the first (March) quarter growth numbers, which are expected to be negative. Instead, they intend to front-load the stimulus into the second (June) quarter, after which measures flow onto business to continue the recovery.

In addition, to continue supporting the economy for the longer term, help in limiting the possibility of a recession and in preventing unemployment from rising too far, it is expected that the Government will need to develop a second stimulus package alongside possible quantitative easing by the RBA. This is similar to how the Rudd government rolled out a second stimulus to help the economy recover following the global financial crisis.

Nicola Beswick

Senior Financial Planner
Certified Financial Planner®
SMSF Specialist Advisor™
Accredited Aged Care Professional™
Authorised Representative No. 459008

If you have any questions or comments, please email me at nicola@gfmwealth.com.au

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