This time last year pundits, myself included, were convinced tens of thousands of small businesses would fall off an insolvency cliff once government support was wound back. But it did not happen and as mind boggling as it may seem, personal and business insolvencies are both down by around 50%.
Nearly all businesses that took advantage of loan deferrals are now back on track, unemployment levels are below 5% and many employers are finding the biggest impediment to their recovery is the inability to find workers.
Government spending staved off what might otherwise have been an economic disaster. Central to this was the $100 billion spent on JobKeeper, (which benefited around 4 million workers), plus another $300 billion made available to banks and other lenders to keep money flowing.
Other factors that cushioned the impact of COVID-19 lockdowns include record low interest rates, surging housing and share prices (which made people feel wealthier), and a wide range of temporary relief measures for owners and directors of cash-strapped businesses.
But with Victoria now in lockdown number five and NSW about to experience what Victoria went through in 2020, this time the insolvency cliff is less likely to be able to be averted. While the removal of JobKeeper and other assistance measures didn’t result in the expected tsunami of business closures, it doesn’t mean we can be assured of a similar outcome this time around.
- It is unlikely the federal government will re-introduce JobKeeper. Politically and fiscally, it can ill-afford to go much further into debt. And the states have limited capacity to provide financial support.
- Will banks, which to their credit have shown restraint and compassion when dealing with struggling customers, continue the shift towards being good corporate citizens or will they revert to the form they were previously known for?
- The Australian Taxation Office has been supportive but it cannot be expected to (and nor should it) play the role of default banker for financially constrained businesses.
- Creditors can and will provide leeway for their customers for only so long. Tellingly, business insolvencies initiated via creditors petitions in 2020-21 constituted 62% of all insolvencies compared with 51% in 2019-20.
- Most commentators expect interest rates to rise in the period ahead, which will make it tougher for borrowers to service their debts.
Meanwhile, the federal government continues to struggle, to say the least, with securing supplies, rolling out vaccines and overcoming vaccine hesitancy. And the point scoring between leaders of different political persuasions does none of them any credit as people cry out for clarity but instead are being dealt confusion.
Until the vast majority of Australians are vaccinated, it seems our international borders will remain closed, which is disastrous for businesses operating in sectors like tourism, hospitality and education, and others that rely on skilled and unskilled foreign labour.
Admittedly there are some that are doing well but for thousands of punch drunk business owners, the financial and mental health toll is becoming intolerable and is compounded by a sense of pessimism as to how and when this nightmare will end. There is only so much they can bare.
Yet amid all this doom and gloom lies a glimmer of hope. It doesn’t come from governments, as it has previously, or even small business themselves, who have been forced to engineer new business models seemingly overnight in order to stay afloat.
But rather it comes from us. Us, local-shop loving, community minded Australians, who after decades of proudly professing our commitment to small business and all things homegrown, now have the chance to put our money where our mouths are.
Let’s hope we are up for the challenge.
This article was first published on LinkedIn.