- Australia is bracing for the end of JobKeeper and JobSeeker as business insolvencies begin to rise by more than 60%.
- With JobKeeper to end in three weeks and business debts up to $1 million needing to be sorted by the end of the month, CreditorWatch has warned Australia is in for an economic whack.
- “This could prompt a rash of insolvencies and, subsequently, redundancies, which could be a destabilising force on the local economy,” CEO Patrick Coghlan said.
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The fiscal cliff is both real and imminent in Australia, the insolvency sector has warned, as wage subsidies and unemployment benefits hit the cutting room floor.
In what could be a sign of things to come, the number of businesses entering into external administration has jumped 61% since January, its quickest jump in more than 12 months, according to credit reporting agency CreditorWatch.
“This is a sign of the commercial climate returning to more normal conditions,” CEO Patrick Coghlan said. “This figure is likely to rise again in the coming months, as JobKeeper ends and the three-month reprieve on credit arrangements for struggling smaller businesses comes to a close.”
Last year the federal government had enabled businesses to trade while insolvent – relief measures which ended on December 31. According to Industrial Relations Minister Christian Porter, the period had been intended to prevent “a further wave of failures” before businesses had the opportunity to recover.
With business conditions beginning to normalise however, insolvencies are beginning to rise as some owners face the decision to wind up now or struggle on. For one, businesses with debts under $1 million have until March 28 to restructure their operations and reach deals with their creditors.
Coghlan expects many will have no choice but to bite the bullet as the deadline falls at the same time JobKeeper and the JobSeeker supplement bite the dust and Australia approaches a fiscal cliff.
“This could prompt a rash of insolvencies and, subsequently, redundancies, which could be a destabilising force on the local economy,” he said. “The number of arrears and court cases related to bad debts tend to rise before insolvency numbers lift, and whilst there’s no evidence of this yet, an increase following the end of government incentives at the end of March is a strong possibility.”
Economists at the Commonwealth Bank have forecasted 110,000 job losses directly linked to the death ofJobKeeper, while the federal government races to finalise a package intended to keep the tourism sector on life-support.
The elimination of the JobSeeker supplement meanwhile is tipped to cost as many as 145,000 jobs, according to Deloitte modelling. While the most recent raise of the permanent rate should offset the $31.3 billion hit slightly, there’s plenty at risk.
Tip of the iceberg
While no matter of crystal ball gazing could predict what’s to come in the approaching weeks and months, there are indications that it will get worse before it gets better.
For example, the recovery of many businesses appears largely hamstrung by the lengthening delays in getting paid.
“Overdue payment times are a key indicator of a struggling sector so we’ll be keeping an eye on industries such as healthcare and social assistance, administrative and support services, wholesale trade and construction,” economist Harley Dale said.
“However, it’d be foolish to expect any of these industries to magically bounce back after the aftershock of the pandemic. This year will all be about slow recovery and we should recognise those sectors that do appear to have turned a corner – at least for now anyway.”
Just four of 19 industries nationwide are better of than they were in January on that front, with healthcare and social assistance invoices now taking four times longer to “the detriment of the health system as a whole”.
On the bright side, credit inquiries also appear up sharply, which typically reflects an improving economy.
“Many businesses are ready to thrive in a post-COVID environment after becoming leaner and adapting their business models so this is very encouraging and will be essential in kick-starting a chain reaction effect across both the business sector and wider economy,” Dale said.
But while encouraging, the next few months will be telling in how the economy copes with the removal of billions of dollars in economic support.
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