Is the government really giving businesses $25,000? What’s the catch?
The government has announced up to $25,000 grants to help small businesses weather the coronavirus crisis. But, it’s not as simple as cash in your pocket.
Yesterday, the government finally announced its coronavirus stimulus package, pledging $17.6 billion to boost the economy through things such as tax-free cash for welfare recipients and an extended instant asset write-off.
The government also proudly announced grants of up to $25,000 for any small businesses that are employing staff. But, of course, it’s not quite as simple as the Prime Minister would like to make out.
Stacey Price, founder of Healthy Business Finances, says in theory, the incentive for business owners that have staff is “fabulous”.
However, already people are interpreting it in different ways, “and there’s going to be mass confusion”, she tells SmartCompany.
“Business owners are expecting to receive $25,000. That’s what they read,” she says.
“But it’s based on the tax they pay on the wages, which is reported on the business activity statement, and there are all these extra clauses … People are not going to get $25,000 in their pocket.”
Price says she has already seen conversations in business Facebook groups where business owners are asking when they get their cash. She even saw one entrepreneur celebrating that they would be able to pay off their credit card debt.
She stresses that the package provides for up to $25,000 — not $25,000 for everyone.
If a business is paying $2,000 tax on wages, they actually only get $1,000 back.
“That will go across the next three or four business activity statements,” Price adds.
“People are getting very excited,” she says,
“But there’s a lot of confusion.”
At the same time, while Price believes the government is trying to do the right thing by business, many small business owners will be disappointed. Sole traders who do not have staff, and don’t need new equipment, may feel particularly put out, she says.
“I think they’re actually going to feel quite angry that they’re not getting what others are.”
A recovery kit
Jon Burrell, director of national camping chain Tentworld, says while he hasn’t looked too far into what the business would be eligible for, it could certainly come in handy.
Following the announcement yesterday, Tentworld has launched its $750 ‘Scotty camping kit for couples’, aimed at people who will be eligible for the stimulus’ personal cash injection.
“We’re putting together a little domestic travel kit for those people right now,” he tells SmartCompany.
Scotty’s Pandemic Couple’s Recovery Kit offers a set of camping equipment worth $1,000, including a tent, self-inflating mattress, queen-size sleeping bag, stove and icebox. The idea is to give Aussies the opportunity to get away, locally, on the Prime Minister’s dime.
So, a grant for Tentworld — whether it totals $25,000 or not — would be helpful for businesses like his, “for a piece of software or some extra marketing spend”.
“We will be putting a bit of marketing money behind this camp kit … and encouraging domestic travel and that sort of thing,” he says.
“We’ve got to look out for ourselves”
Toby Strong, founder of coffee pod business Podpac, tells SmartCompany he has paid “paid very little attention” to the government’s stimulus package.
“I would just never rely on the government for anything, let alone to help or save our business,” he says.
“We’ve got to look out for ourselves, and we always do that.”
However, the sum of $25,000 does fit the bill for the kind of support he feels he would need if the business has to take strong measures in the face of the coronavirus outbreak.
“If there is a forced quarantine and we all have to spend three weeks at home, my personal feeling is that we all need to share the pain on that a little bit,” he explains.
For Podpac, $25,000 would be equal to about a week’s worth of salaries, he explains. The business itself would cover another third of wages.
“We would hope our staff would be comfortable using a week of annual leave or sick leave, or something like that.”
He stresses that this isn’t Podpac’s official position at the moment.
“But that’s my own personal thoughts on what seems fair in a situation like this.”
That said, he also doesn’t know if the business will get that $25,000 that it needs.
“Without properly digging into the numbers, I don’t know exactly where we sit and what that means for us,” he says.
“But we are prepared to tackle this without any assistance from the government. So anything extra we get will be a bonus in my view.”
And any cash injection Strong does get from the government will be strictly sidelined for dealing with coronavirus, the founder says.
“I strongly believe there will be at least a handful of staff that we have to quarantine at some point,” he says.
“We would hold on to that cash and just have it up our sleeve for that scenario.”
And, he advises others to do the same.
“It’s always smart to have some cash in these situations.”
Don’t get into a pickle
From an advisory perspective, Price agrees.
“I guess that when they do get that rebate, the government is hoping they will invest that back into their business, and support other businesses by buying more materials and buying more products, and paying for more services. And it all goes round and round and round,” she explains.
“I don’t actually think that’s what’s going to happen.”
She believes we will see business owners paying off credit cards and bills, or paying school fees to get ahead of themselves.
She’s not so sure the incentive will actually stimulate people to spend.
“I think people are really cautious at the moment with cashflow. It’s just non-existent,” she says.
“I don’t think people are going to go out and spend it easily. I think they will either wait and see what they really need. Or, they’re going to put it on a home loan, or pay off a credit card debt, which doesn’t really go anywhere.”
Price advises business owners not to go out and spend any money they haven’t received yet.
“Really think about whether you really need to spend that money,” she says.
“You’re not guaranteed to get $25,000. Don’t go and sign up for a new $25,000 car today.
“Chances are you won’t be able to afford it, and you’ll get yourself further into a pickle.”
