2021 Risks and Opportunities
With the borders between States and Territories all but open and 2021 in sight, there is a hunger to return to ‘normal’. The recent Westpac-Melbourne Institute Index of Consumer Sentiment articulates this desire to ‘get on with things’; a sentiment that reached its highest level since November 2013. Plus, despite experiencing a global pandemic, Christmas spending is expected to be as consistent as previous years.
However, the Reserve Bank of Australia (RBA) cautions that the recovery will be uneven and drawn out, and Gross Domestic Product (GDP) is not expected to return to pre-pandemic levels until at least the end of 2021. The risks are not limited to the pandemic, but rather Australia’s geo-political relationships – notably our largest trading partner, China.
So, what is the outlook for 2021? Take a look at our list Risks and Opportunities.
Employers and Job Building
Reducing unemployment is a national priority. While the unemployment rate is expected to decline in 2021, further rises are expected as businesses restructure in response to the pandemic. Wage growth will also be subdued with excess capacity in the market.
New analysis from the RBA suggests one in five jobs were saved by JobKeeper. Given that 3.5 million individuals were receiving the payment over the period from April to July 2020, this implies that JobKeeper reduced total employment losses by at least 700,000 over the same period.
The number of businesses accessing JobKeeper reduced by around 450,000 in October 2020 with the transition to more stringent eligibility requirements. The shift now is to create jobs, not just keeping them. There are a number of incentives for employers to grow employment and skills:
A 12 month ‘hiring credit’ available for jobs created from 7 October 2020 until 6 October 2021 that provides a payment to employers for eligible new employees aged between 16-29, and $100 per week for eligible employees between 30-35 years. Read more on the JobMaker Hiring Credits here.
The deadline for enrolling in the JobMaker Hiring Credit scheme to access payments for this period is 6 January 2020. While the Australian Tax Office (ATO) has the ability to extend this deadline, there has not been any advice on this to date. Enrolments are not open as yet but because of the tight turnaround times, if your business would like to access to JobMaker for the first period, it will be important to assess eligibility.
Subsidies of 50% of an apprentice’s wage (up to $7,000) are available for new and existing apprentices to keep them employed. The schemes apply to the wages of new apprentices from 5 October 2020 and 30 September 2021, and existing apprentices from 1 January 2020 to 31 March 2021. Eligibility requirements apply to the business and the apprentice.
In addition, subsidies are available for employers engaging apprentices in key industries with skills shortages including carpenters and joiners, plumbers, hairdressers, plasterers, bakers and pastry cooks, vehicle painters, wall and floor tilers, arborists, bricklayers and stonemasons, and air-conditioning and refrigeration mechanics.
There is also additional support for adults re-skilling and undertaking an apprenticeship and for apprentices with a disability – check out the full list of incentives.
Tax breaks to encourage more employers to employ more workers are big right now. WA has an Employer Incentive Scheme with a base payment of $8,500 for employing apprentices, while other States – like Victoria and New South Wales – have other incentives available. It’s worth checking with your local State Government to see what’s available in your region.
It should be noted that Federal Government incentives generally do not overlap, That is, your business cannot receive incentives for JobKeeper and JobMaker, or JobMaker and an apprenticeship subsidy.
HomeBuilder and the Housing Industry
The HomeBuilder scheme provides a tax-free grant to those building a new home or renovating. To date, around 27,000 homes are expected to be covered by the scheme.
The Assistant Treasurer recently announce an extension, with all new build contracts signed between 1 January to 31 March 2021:
- Eligible owner-occupier purchasers will receive a $15,000 HomeBuilder grant (down from $25,000), and
- The property price caps for new builds in NSW and VIC will be increased to $950,000 and $850,000 respectively.
In addition, the construction commencement deadline will be extended from three months to six months for all eligible contracts signed on or after 4 June 2020.
There is also a change in the licensing requirements and registration for builders and developers:
- Where an eligible contract is signed on or after 29 November 2020, the builder or developer must have a valid licence or registration before 29 November 2020
- Where an eligible contract is signed before 29 November 2020, the builder or developer must have a valid licence or registration before 4 June 2020
The eligibility criteria to access HomeBuilder remains the same. To be eligible you need to be an individual owner-occupier, 18 years of age or more, an Australian citizen, and pass the income test. The income test for individuals is $125,000 and $200,000 for couples (based on your 2018-19 or later tax return).
The grants are available if you build a new home where the value of the house and land does not exceed the threshold ($750,000 to $950,000 depending on when the contract was signed and which State you live in), or a renovation where the value of the property is $1.5 million of less.
Extended Rules for Writing off Assets
In the 2020-21 Federal Budget, the Government introduced a measure that allows businesses with a turnover under $5 billion* to immediately deduct the cost of new depreciable assets and the cost of improvements to existing assets in the first year of use. This means that an asset’s cost will be fully deductible in the year it’s been installed ready for use, rather than being claimed over the asset’s life. Importantly, there is also no cap on the cost of the asset.
Later, the Government announced amended rules that will enable businesses with an aggregated annual turnover of $5 billion or more (the current maximum threshold) to access the measures if they can satisfy an alternative test. This will allow some Australian businesses that are connected to large global groups to access the measure.
*Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.
COVID-19 Rules and Regulations
Despite feeling like we are emerging from the pandemic, the promise of a widely available vaccine is still a way’s away and the risk of another wave remains very real. For business, it will be essential to ensure that COVID-19 safe conditions are maintained. Aside from the obvious health risks of not maintaining a safe environment, a lockdown risks your business’s survival and the fines for breaching public health orders are hefty.
Australia’s relationship with China
Tensions have been simmering over the last few months. Non-compliance with China’s political will comes at a cost and, in response to Australia’s public position, China has flexed its economic muscle through the disruption of Australian exports.
China is Australia’s largest trading partner by a margin that dwarfs trade with any other single nation. The value of exports to China has doubled in the five years since the signing of the China-Australia Free Trade Agreement from $75 billion in 2014-15 to $150b in 2019-20; imports have also grown significantly, up 42% in the same period.
During a speech in August, Minister Wang Xining stated that any long-term relationship is based on “mutual respect”. Australia’s perceived lack of respect was highlighted by the 14 grievances leaked by a Chinese diplomat to Channel 9 – including banning Huawei from Australia’s 5G networks to calls for an inquiry into COVID-19 and siding with the US’ anti-China campaign.
So what’s next? Australia has not publicly backed down or been any less vocal with the announcement of a new defence pact with Japan or its continued pro-democracy stance on Hong Kong. There is likely to be more pain to come for Australian exports to China, and no short-term resolution in sight.
Australian economists are fairly united that there are a number of ‘zombie businesses’ that are being kept alive by JobKeeper. These are the businesses that are only surviving because salary and wages are propped up by the subsidy. The danger with these businesses is that they are continuing to take on debt.
JobKeeper ends in March 2021, which coincides with one of the traditionally worst cashflow months of the year. It will be important to ensure that your business stays on top of its debtors and doesn’t become a bank for your customers. It will be important to understand your cashflow position, don’t over commit, and stay on top of labour costs.