WHAT IS IT AND HOW CAN IT BENEFIT YOU
Dear Hudson Member,
We all seem to be overwhelmed by the COVID19 virus pandemic. Out best advice at this stage is to stay safe, prepare for disruption, and take advice from your Hudson Adviser before you act on any investment decisions.
THE CURRENT STATUS:
As COVID 19 spreads across the world the economic impacts are set to rival the medical impacts.
As world governments strive to get one step in front of the virus medically - via mass lockdowns and severe restrictions on social contacts, in an attempt to flatten the curve, the economic impacts are becoming all too real for all of us.
The Australian economy is grinding to a halt albeit temporarily as it adjusts to near shutdown of most activities.
The medical imperative is to slow down the virus to give the hospital system time to work its way through and delay the peak impact on hospitals and thereby guard the most vulnerable and (hopefully) limit fatalities.
This medical imperative leads to an economic calamity.
The virus will peak - eventually with lower daily cases (as countries such as China and South Korea are experiencing in recent weeks), but what economy will we be left with when the dust settles?
The Reserve Bank of Australia (RBA) is supporting the financial system with rate cuts and liquidity injections.
The government has now announced yesterday a second stimulus package with more likely in coming weeks.
This is all aimed at building a bridge for the economy from here to a post virus setting (as the Government states) with as little permanent damage as possible to the economy and jobs.
GOVERNMENT STIMULUS PACKAGE II
The government has announced a second stimulus package, this time of $66 Billion, aimed at protecting the most vulnerable and saving jobs in small businesses.
The stimulus is directed towards government payment recipients, pensioners, small business owners and jobseekers.
Employees do not receive a direct benefit, but will benefit by extension, if their Employers are still viable.
GOVERNMENT PAYMENT RECIPIENTS
The government has announced a 'coronavirus supplement' of $550 per fortnight for the next six months on top of other benefits already being received.
This will see Jobseeker Payment (the re-named Newstart) effectively doubled.
The government is providing TWO payments of $750 to social security, veteran and other income support recipients.
The first payment will be made on 31st of March for those who meet the criteria as of 12th of March.
The second payment will be made from 13th of July for those eligible as of the 10th of July indicating the government sees the crisis extending into the second half of the year.
Those who are jobseekers, casuals or sole traders will be able to tap into their Super to the tune of $10,000 before 1 July, and a further $10,000 from 1 July for three months - again indicating the immediacy of the crisis.
The withdrawal process will be handled through the ATO which will issue a 'determination' to your Super fund.
The eligibility for this revolves around the individual being unemployed or being in a position where their hours of work have been reduced by 20% or if you are a sole trader your turnover being reduced by 20% since the 1st of January.
No tax is payable on the withdrawal and it will not impact on other Centrelink or Veterans affairs payments.
ACCOUNT BASED PENSIONS
For those members in Superannuation Pension Mode the minimum age based drawdown amount has been reduced by 50% until 2021, acknowledging the declining balances of most Pensions due to the sharp fall in the local and offshore share markets.
Aged Pensioners appear to have been given some welcome relief, by a reduction in the deeming rate, which assumes that an assured 'fixed' rate of return is received from certain investments. This in turn, affects the eligibility and amount of the actual aged pension paid. The government has finally recognised the low rates of returns on offer particularly on fixed interest investments and reduced the deeming rates
The lower rate will now be 0.25% (in line with the RBA official cash rate) and the upper rate 2.25% as of 1st of MAY. This is expected to assist 900,000 Pensioners with increased age pension payments
In an attempt to assist companies to hold onto staff over the coming months and to see a more robust recovery once the virus is dealt with, the government will pay out up to $100,000 to eligible small businesses (up to $50 million in turnover) to retain staff. The payment will be linked into the tax payments businesses forward to the ATO when they withhold tax from PAYG employees. The more staff you have the more withholding tax and the larger the payment.
In addressing one concern from the first stimulus package the government has increased further the amount it will pay eligible small businesses who employ others.
The Boosting Cash Flow for Employers measure will pay up to $50,000 to business representing up to 100% of the tax withheld amounts for their employees The minimum amount paid has been increased to $10,000 from $2,000, whilst the maximum has been increased from $25,000 to $50,000. Later in the year (July to October) the government will then pay an additional payment equal to all of the Boosting Cash Flow payments the employer has received till then, again trying to reward companies for retaining staff .
OTHER SUPPORT for BUSINESS
The government has stepped in and worked with the banks and will now guarantee 50% of new loan amounts lent to small businesses. This is expected to lead to support of up to $40 Billion in lending, with banks working out how this will all work and rapidly getting funds out to businesses.
The official RBA cash rate was cut during the week to its lowest ever of 0.25%, which banks have (selectively) passed onto fixed rate home loans - However rates are already historically low across the board, so this may have little practical effect for individuals.
In a welcome move deposit rates have actually RISEN (with CBA offering 1.6% and Macquarie 1.75%) - not a king's ransom - but a huge turnaround for many.
The CBA has also announced it will make available $10 Billion in Unsecured lending to small businesses (specific conditions to be advised) at rates of 4% with no repayments required for six months, and no interest charged if not drawdown. This will provide welcome cashflow certainty for many. The other major banks are likely to offer similar arrangements in coming days.
At this stage there is no direct mortgage relief for individual employees who are not business borrowers but this may be a part of future stimulus packages, as has been announced by overseas governments including in the UK
New insolvency laws for next six months will make getting paid harder. There is an increase in the threshold for statutory demands from $2,000 to $20,000, an increase in the time for compliance with a demand from 21 days to 6 months and even temporary relief for directors for any personal liability for trading while insolvent.
HUDSON IS HERE TO HELP
As we have done for 28 years we are here to provide professional and effective advice for our many members.
The nature of how we provide our services to our members will not change which means that your trusted qualified and experienced adviser will remain accessible and is only a call away. If you are concerned about the current situation or need to speak with your advisers about any of the above matters or simply want a review of your overall situation, including your finances and insurances, simply telephone 1800 804 296 and book in a call.
This is historically an unprecedented event for Australia and the world.
Tragically there will be untimely deaths from this event.
There will be economic fallout and the government and the RBA are doing all it can to assist in this difficult time.
We will get through this in the next 3 to 12 months but with much uncertainty on the ultimate timetable and outcomes both medically and economically.
Out best advice at this stage is to stay safe, prepare for disruption, and take advice from your Hudson Adviser before you act on any investment decisions.