Further JobKeeper extension such a good thing
The Federal Government has extended JobKeeper with diminished payments until March next year, but it could make an investment in the economy’s future of inestimable value should it decide to extend the program even further.
While there is little if any immediate political kudos in announcing a decision to do this before March 2021 it would nonetheless give vital confidence to thousands of owners of good pre-COVID-19 businesses, surviving now only because of government help, but by no means sure they can function profitably unassisted when scheduled assistance is gone.
Prime Minister Scott Morrison has been pressing State premiers to open up borders to give the national economy a much-needed boost, so what better way to be seen backing his own rhetoric, businesses and their employees, than by announcing that his government will back them financially for as long as COVID-19 chaos continues.
Because the Federal Government is aware continuing temporary legal changes and financial assistance packages are tending to prolong the lives of illegal zombie companies and badly run corporations already headed for financial disaster pre-COVID-19, it’s understandably reluctant to further extend financial assistance packages.
However one size doesn’t fit all
But among thousands of businesses and employees, now in serious financial stress through no fault of their own, are many previously sound companies linked to travel that have always relied on millions of travellers, now banned from coming to Australia. For example travel agents, aviation, tourism, road and rail transport.
Much of this banning is still likely to be in force beyond March next year.
Thousands of restaurants, cafes and bars across the nation, because of ongoing requirements for social distancing, can’t be expected to run at a loss indefinitely, and diminishing JobKeeper payments are particularly exacerbating stress levels in these businesses.
During the virus crisis the program’s wage subsidies have sustained about a million businesses and provided financial support for more than 3.5m workers, and the Reserve Bank of Australia (RBA) warns that “business failures will rise substantially when loan repayment deferrals and income support come to an end”.
It also says “there will be flow on effects to creditors, both financial institutions and other businesses, and their employees”.
Further argument for extension
The $100bn JobKeeper program has already reduced the rate of business failure this year by about 4,600 companies compared with last year, and the RBA estimates a further 6,600 will be saved next year by the scheduled extension till March.
This begs the question of how many more worthwhile businesses could be saved by further extending JobKeeper, and whether the cost would be good value for money.
If the only worthwhile businesses saved were those in, or associated with tourism and hospitality, these would still pay a major role in rebooting Australia’s economy when international travel is restored. Because the country has handled the pandemic so well, business and tourist visitors may well be inclined to come here more readily than ever.
Surely it can be reasonably argued that the government cannot afford to miss the opportunity for a substantial cash injection after having already spent so much on maintaining so many of the sector’s companies on life support.
In order to service an expected post COVID-19 flock of visitors to Australia - likely to exceed proportionally that of any other country - it would appear to be a priority investment for the Federal Government at justifiable cost.
Investing in an economic future
The government has already spent hundreds of millions of dollars in doing a very good job of shielding Australia from the worst of COVID-19’s financial devastation inflicted elsewhere, while setting it up long term as an exceedingly attractive place in which to invest, live and work.
In this context spending a few extra billions beyond March 2021 on financial support of worthy companies in sectors most likely to capitalise on this achievement (yet still affected by the virus crisis) is seemingly good business.
Furthermore, interest rates globally could scarcely be lower, so the cost of repaying Australia’s national debt is a smaller proportion of the economy (GDP) than it was in the 1990s.
Macks Advisory is aware an increasing number of economists believe policymakers must avoid repeating the mistake of withdrawing support too soon, as they did after the 2008 financial crisis. We see this danger as real while so much uncertainty remains about how the crisis will unfold.
Nobody knows how soon COVID-19 will be brought under control, or if not brought completely under control, how soon it can be held in check globally to a degree sufficient for Australia to go full throttle promoting itself globally as ideal for tourism, investment, education, and business at all levels.
So much about rebuilding our economy and making the most of our situation globally will be about restoring confidence. An early announcement by the Federal Government that it will continue financing businesses of significance to that rebuild beyond next March, would be of inestimable emotional and monetary value to business owners. It would also appear to be a good investment of taxpayers’ dollars.
