At least 5000 businesses are likely set for closure in the next three months following the end of the JobKeeper wage subsidy and as rules around trading while insolvent return to normal.
Credit reporting agency CreditorWatch chief executive Patrick Coghlan says he is not expecting the tsunami of insolvencies that was talked about last year, but argues companies need to be allowed to fail.
“It means companies that shouldn’t be operating aren’t pulling down the rest of the economy,” Mr Coghlan said.
“We need to get back to at least pre-COVID administration levels and away from the synthetic environment we’ve lived in for the past 12 months.”
Australian Securities and Investments Commission figures show 8000 businesses are normally placed in administration each year, but during 2020 only 5000 firms were forced to close.
It means 3000 businesses that should have become insolvent last year are due to fail this year.
On top of that, an analysis by CreditorWatch and McGrathNicol calculates an additional 2000 are likely to be insolvent as a result of the pandemic.
They say the temporary moratorium on insolvent trading the federal government introduced in 2020, as well as the JobKeeper provision, artificially supported some businesses to continue trading that would have otherwise failed, creating so called ‘zombie companies’.
Meanwhile, economists will be keeping an eye on housing-related figures over the next couple of days given the strength of house prices and lending in recent months.
The Reserve Bank will release its monthly credit figures and the Australian Bureau of Statistics will post building approvals for February on Wednesday.
On Thursday, CoreLogic will release its home value index for March and the ABS will have lending figures.
Australian Prudential Regulatory Authority chair Wayne Byres told a conference on Tuesday he and his Council of Financial Regulators colleagues are watching developments in the home lending sector.
“There does not seem cause for immediate alarm. Nor, though, for complacency,” he said.
Australians to fall below poverty line
Tens of thousands more people face falling below the poverty line as the coronavirus supplement to the JobSeeker dole payment comes to end on Wednesday.
An analysis commissioned by the left-leaning Australia Institute says scrapping the already reduced coronavirus supplement and replacing it with a $50 per fortnight increase in the JobSeeker base rate on April 1 represents a $100 per fortnight cut for those currently on the dole.
The institute estimates this cut will push a further 155,000 into poverty, meaning some 580,000 more people will be living in poverty than before the pandemic began.
The $550 per fortnight coronavirus supplement was introduced by the federal government in March 2020 at the onset of the COVID-19 pandemic, almost doubling the JobSeeker benefit – formerly called Newstart.
It came as news bulletins around the country showed thousands of people lining up at Centrelink offices as the country went into lockdown.
This one change lifted 470,000 Australians out of poverty and more than any other single government policy measure, the institute’s senior economist Matt Grudnoff says.
But at the end of September 2020, the supplement was reduced to $250 per fortnight and was cut again to $150 per fortnight at the end of December.
“If instead of cutting the coronavirus supplement, the government had instead chosen to restore the full $550 supplement, then half a million Australians would be lifted out of poverty, including 90,000 children,” Mr Grudnoff says.
He says the government has a choice in that it can sentence more than a million Australians to living in poverty, including hundreds of thousands of children.
“Or it can make the same choice they made last year and show that Australia is a compassionate country and spare these people that fate,” he said.
The recently agreed $50 hike in the JobSeeker base rate was the first increase in over a quarter of a century, outside of index-linked increases.
Social Services Minister Anne Ruston does not agree this modest increase will leave people below the poverty line.
She says there are many other things in place help people, whether it be assisting them with their rent and making sure they get the full amount of tax benefit.
“We don’t want people to be on unemployment benefits,” Senator Ruston said.
The end of the coronavirus supplement comes just days after the JobKeeper wage subsidy came to an end, a program that successfully steered the economy through last year’s recession.
Treasury estimates up to 150,000 people could be left without a job as a result of the wage subsidy ending.
