We Will Survive This
With the evolving outbreak of the Coronavirus, economies all over the world are experiencing extreme implications and some of us are wondering how we are going to get through this challenging time. We must remember that it’s not all doom and gloom for everyone. Some people are in a great position at the moment, with some businesses and work picking up. The other side of the coin is that some people are struggling and will need to take hold of the Government support that is available.
As Australians, what support is available to us? What are the banks doing to assist us during this time? And for property investors, what should we consider during this period of uncertainty?
Luckily for us, Australia is one of the worlds advanced economies in the best positions to provide fiscal support. The Australian Government have released stimulus packages set to; support businesses in managing short-term cash flow challenges, provide support to individuals, severely affected communities and regions, to ensure the continued flow of credit in the Australian economy and to ensure that employers can maintain connections with employees during this challenging period. The policies that have been announced include loan arrangements, tax deferrals and relief, cash payments and income support.
We’ve complied a summary of what benefits you may qualify for as an individual and household, as an employee, as a small to medium business owner, or as a sole trader. We’ve also outlined what the Big Four banks are doing to provide some ease during this time.
Stimulus packages
Individuals and households
Over the next six months, the Government is expanding eligibility to income support payments and establishing a new time-limited Coronavirus supplement to be paid at a rate of $550 per fortnight on top of an individuals existing support payment. This will be paid to both existing and new recipients of Jobseeker Payment, Parenting Payment, Austudy, Living Allowance, and more.
To support confidence and domestic demand in the economy, two separate payments of $750 will go to social security, veteran and other income support recipients and eligible concession card holders. One of these payments was made from the 31st of March, and the second payment will be made from the 13th of July 2020.
Employees
A JobKeeper Payment has been implemented so that more Australians can retain their jobs and continue to earn an income,. This entitles employees of eligible businesses to $1,500 per fortnight for a maximum of 6 months. Your employer should notify you if they are claiming the payment for you and other staff members.
Small/medium businesses
As mentioned above, the JobKeeper Payment helps eligible businesses significantly impacted by the Coronavirus cover the cost of their employees’ wages. Eligible businesses are those whose turnover has reduced by more than 30 per cent (if turnover is less that $1 billion). If registration for the payment is approved, the Government will provide $1,500 per fortnight per eligible employee for a maximum of 6 months. The JobKeeper Payment intends to enable any eligible self-employed person get a wage subsidy regardless of what business structure they use.
In addition to this, employers will receive a payment equal to 100 per cent of their salary and wages withheld (up from 50 per cent), with the maximum payment being increased from $25,000 to $50,000 and the minimum payment increased from $2,000 to $10,000. An additional payment is also being introduced equal to the total of all of the Boosting Cash Flow for Employers payments received. This means that eligible businesses will receive at least $20,000 up to a total of $100,000 under both payments. Not-for-profit entities will also be eligible
Sole-traders
Sole traders may be eligible to receive the JobKeeper Payment if their turnover has reduced due to the impact of the Coronavirus. Following registration by the eligible business, the Government will provide $1,500 per fortnight per eligible employee for a maximum of 6 months. This will support sole traders to maintain their income and connection with employees.
The Government is also temporarily expanding the eligibility criteria for the JobSeeker Payment to support sole traders if their income is negatively affected by the economic impact of the Coronavirus. As a member of a couple you could receive up to $1060.80 per fortnight through the JobSeeker Payment and Coronavirus supplement, although the precise amount will depend on the amount of income you and your partner continue to earn. Receiving the JobSeeker Payment may also make you eligible for other Government payments like Rent Assistance and the Energy Supplement.
The subsidy began on the 30th of March, with the first payments to be received by sole traders in the first week of May. Sole traders can apply for payments through the ATO website.
How are the banks lending a hand?
Australia's Big Four incumbent banks - ANZ, Westpac, Commonwealth Bank and NAB have announced that eligible mortgage holders can defer repayments for up to six months. The banks have stated that customers experiencing financial difficulty as a result of the pandemic should contact them to discuss the potential of delaying their mortgage repayments. Below is a summary of how the Big Four are supporting home loan customers and credit card customers (where applicable) during the Coronavirus crisis.
Commonwealth Bank
Home Loans
70-basis point cut to 1-, 2-, and 3-year fixed rates – all to 2.29%.
No cuts for variable home loan customers.
Reduction of repayments to minimum required under their loan contract & easier access to overdraft facilities.
Hardship support – deferral of business term loan repayments and overdrafts up to six months.
Credit Cards
Customers can expect some relief from CommBank if they failed to meet their minimum repayment on time during last month due to the Coronavirus. CommBank said it will automatically refund their late fees and interest for March. As for April and the months to come, Commbank have not yet announced how they will continue to support their credit card customers.
Westpac
Home Loans
90-basis points cuts to 1-, 2-, and 3-year fixed rates – all to 2.19%.
No cuts for variable home loan customers.
Hardship support – deferral of home loan repayments for six months.
Credit Cards
If customers need to defer credit card or other loan repayments, they will need to apply via the Westpac website for payment flexibility.
NAB
Home Loans
60-basis points cut to fixed rates – lowest to 2.19%.
No changes to home loan variable rates.
Hardship support – deferral of home loan repayments up to six months.
Credit Cards
From April 3, NAB began to waive its $15 late payment fee on all credit cards for at least the next three months. From April 27, NAB will also lower the minimum monthly repayment threshold for all of its credit card customers for at least three months. This reduction will be either $5, or between 2.0% and 2.5% to 0.5% of the closing balance, depending on which number is larger.
ANZ
Home Loans
49-basis points cut to fixed rates – lowest to 2.19%.
Cut variable rates for both new and existing home loan customers by 0.15 per cent from 27 March.
Hardship support – deferral of home loan repayments up to six months.
Credit Cards
If you're worried about your personal credit card debt and your ability to make repayments, ANZ have options of transferring to a product with lower interest rates, changing your credit limit, and setting up direct payments to help you stay on top of things. Customers need to apply for assistance through the ANZ website.
What will this stimulus support do for the economy?
While most Australians are likely to qualify for some kind of financial support, and with the banks doing their bit to assist their customers, the majority of Australian’s are not likely to be spending during this time, which means the economy is likely to remain flat for some time. The money that has been (and is yet to be) injected into our economy, nearing an estimated $320 billion, is a helpful band-aid that our country certainly needs at this point. Unfortunately, future generations will be paying for this for a very, very long time. Luckily for us, Australia’s position heading into the Coronavirus crisis is stronger than many, and is forecast (by both the IMF and OECD), to grow faster than comparable economies such as the UK, Canada, Japan, Germany and France. Another plus is that Australia is in a position to provide fiscal support without endangering debt sustainability.
Considerations for property investors
While the unexpected impact of the Coronavirus outbreak on economies globally has rattled property investors, it remains crucial to have the right investor mindset to weather the potential risks and stay on course.
Over the past few decades, the global economy had been subjected to potential risks due to a host of challenges, from the SARS outbreak in 2002 to the Global Financial Crisis in 2008. Despite these challenges, the economy has continued to function and has, over time, corrected itself. Investments like property are a long-term growth asset and are not something we want to be offloading in a year or two without having realised the long-term capital growth.
We should also remember that there is a cost that comes with not investing. The current conditions present an opportunity for people to invest, and it is crucial to weigh up the cost of not doing so. By not making calculated and well-informed decisions with our money, we may think we are protecting our wealth. Letting our funds sit stagnantly in the bank could be more costly in the long run than many investors realise. We want our money to be transformed into a living, breathing entity, something that is moving and growing at all times. If it just sits there like a plant that hasn’t been watered, it will wither.
Make your decisions with clarity and base them on the numbers. Tie this in with your overall long-term plan to ensure that you anchor your investments on the fundamentals that will see you through turbulent times. And for now, embrace the support that is available to you and remember - this too shall pass.