For a lucky few, the free money fountain is still trickling. But shhh! Don’t tell anyone.
Australia’s economy has healed at record pace. Despite occasional lockdown outbreaks, business conditions are at a record high, as measured by the National Australia Bank in May.
“By state and industry, the strength in activity is evident everywhere,” it said in a note to clients.
But small businesses are still getting fat handouts in the long tail of Australia’s most insanely generous business program.
Crikey wrote about this last week: a $35 billion program which somehow sailed under the radar. The government gave a sum of money to small businesses equal to double the cost of all our doomed Joint Strike Fighters, and the media ignored it, focusing on JobKeeper instead.
The program, called cashflow boost, was different from JobKeeper in that businesses did not need to suffer to qualify. You could have been a toilet paper profiteer or a home office equipment vendor enjoying the best business conditions in history and still have qualified for handouts of up to $100,000, as long as you were a small business (or charity) with a turnover of less than $50 million.
And the handouts are still going, the accounting and advisory firm Johnston Advisory’s principal Ben Johnston says.
“It hasn’t been in the media anywhere but the government has been giving money to a lot of people who were previously rejected … because the ATO were incorrectly interpreting their eligibility,” he said.
“In the last month the ATO has been sending out letters to clients and saying: ‘Sorry, on the back of a federal court ruling we are now actually going to be giving you your cashflow boost payments, because we interpreted it wrong at the time’ … I daresay it would be in the tens if not the hundreds of millions of dollars.”
The continuing largesse owes its origins to a Queensland small businessman named Jeremy Apted. He took the commissioner of taxation to court for denying him cashflow boost simply because he had no active ABN at the time. After a range of appeals he won, and now the government is on the hook for yet more payments. In early 2020 the cashflow boost was landing in environments where it was a lifeline, but now the payments flutter down into piggybanks already stuffed to bursting. Businesses are flush.
“This client I’ve got cried on the phone pretty much,” Johnston said. ”[They told me:] ‘We needed it then, we got through it, we’ve got money now and we’ve got this 20-grand bonus that we didn’t think was ever going to come through.’ ”
As the final hundred million dollars or so in free money flows to small businesses, it is worth reflecting on how such a program avoided our attention. Yes 2020 was a busy year with a lot to think about, but how can the government give out $35 billion to its core demographic — small business — and not get a few more headlines?
I asked University of NSW economist Cameron Murray if he considered the policy to be a good one.
“No,” he said. “Thirty five billion dollars is roughly $3500 for each of Australia’s 10 million households. Instead of sharing these funds around to support spending across the economy, it went to 800,000 small-company-owning households only and missed many small businesses that operate under different structures — for example, sole traders.
“When you consider that one alternative way of putting that much money into people’s bank accounts was to do it equally across households, which would then provide customers to these businesses, then you can see that there are better and fairer ways to support economic activity.”
When the media was ignoring the cashflow boost, Murray was one of the few to draw attention to it.
“Why these billions evaded media scrutiny is a bit of a mystery, but something we should try and learn from,” he said. “Was it because the payment seemed so ridiculous that it made sense for everyone who received it to keep quiet to ensure the absurdity did not become widely known and the payment revoked? That’s the only story that makes sense to me at the moment.”
Pocket the money and shut up? Probably a good strategy. Nobody is paying attention. Because while the media is very alert to the doings of big business, small business slips under the radar.
The financial press scour the minutiae in the reporting of the biggest 200 companies in Australia. It’s easy to whip up furore about Gerry Harvey pocketing $22 million in JobKeeper. But if a program gives away more than a thousand times as much to a much larger bloc of small businesses, scant attention is paid.
“Should this experience change how we think about government actions?” Murray said. “We often concede that governments care about their budgets and that is why they choose to enact one policy over another. But when we witness billions of giveaways like this, we should reassess. Maybe they don’t care about how much they spend? Maybe they only refer to budgetary impacts for things they don’t want to do but ignore them for things they do want to do?”
It’s an important insight. Some spending is so easy for government that it waves it through, while other programs are subject to enormous scrutiny.
The media is at times complicit. Instead of going along with that, we should work hard to scrutinise the big spends, not just the big headlines.
Absolutely outrageous…no wonder the recipients aren’t talking about it!
But it’s okay for the unemployed to live on peanuts…apparently!!
This outright corruption is just another version of the sports or carpark cesspit. The variation is that this is targeted directly at its voters, rather than donors. It is, however, and even more virulent attack on democracy. Yet they are not unpopular.
Where do I sign up?
This sounds like an important story. I found it hard to follow just on the information presented.
Most of this article, and Jason Murphy’s 30 June article are expressing criticism of the scheme, and astonishment at the lack of media scrutiny. But since the matter has received such little publicity and scrutiny, it’s difficult to know what to think without a better understanding of the scheme.
This article says “800,000 small-company-owning households” participated in the scheme.
That’s a lot. How did they hear about the scheme?
What did they have to do to join the scheme?
The 30 June article links to an ATO page about the scheme. But how did 800,000 entities know to look at that ATO page?
Was an application for the scheme implied by a JobKeeper application, or was a separate application required?
Is there any evidence that the Liberal Party promoted this scheme to constituents? If not, what was the point of creating such a large scheme? How did it work, from the government’s point of view?
Frank asked: This article says “800,000 small-company-owning households” participated in the scheme.That’s a lot. How did they hear about the scheme? What did they have to do to join the scheme?
Frank, I have a longer response that may pass review and embargo later today. Meanwhile, it wasn’t an opt-in scheme or even an opt-out scheme: the ATO just altered monthly tax payment arrangements for companies registered for Pay as You Go (PAYG) monthly tax payments. It came without notice in Mar-Sep last year as monthly tax credits. Most of the credit would pay off your monthly tax debt but any ‘left over’ became a cash transfer, even if (as a published example shows) you had outstanding tax debt on a previous month.
Some clear rules also say you can’t pull this money out as a dividend as some companies did with JobKeeper: the ATO will come after it.
My company did with the Cash Flow Boost as it did with Jobkeeper: just ignored it and kept running our business to plan under Covid-reduced activity. We didn’t need the handouts, and don’t want the headaches.
In the end, I expect the ATO will find some direct or indirect way to claw back the ‘cash flow boost’ (which is easy, because it’s recorded in perpetuity and sits as added complexity on your company’s tax file: they can just pull it back post-Covid the next time your company makes a profit), but I doubt they’ll do it before the next election. In any case there’s no policy published about this, so businesses are confused as to what the hell it means.
There’s a link at the ATO site and presumably Jason has read the link but I doubt that he’s talked to even one tax accountant about it, because he seems to know less than I do and I only found out last month.
Jason I haven’t seen a link from you to the policy though you may have linked it previously. In case anyone else is interested, I believe the following refers: https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/In-detail/Boosting-cash-flow-for-employers
As you may be aware most business are now paying tax monthly on employees income, GST and against any prospective profits based on previous years’ performance. So where personal taxpayers have annual interactions with the Australian Taxation Office, most businesses are now reporting and transferring cash to the ATO every month, so we have a fair idea what the ATO thinks we owe or are owed.
As a business owner I saw ATO entries on this in our monthly tax assessments for late FY20 and early FY21 but didn’t understand it until the EOFY meeting with our accountant last month, so I’d been largely ignoring it and just tending to our knitting.
Here’s my current take.
My view?
If you were running a cash-strained business in Mar-Sep last year you might have seen it as a lifeline, have just been grateful to keep trading and let your accountant worry about the longer-term implications.
If you’re a marginal business that probably wouldn’t have survived pre-Covid, it has also perhaps kept you alive when you should have wound up. That may result in more unpaid debt to employees and creditor businesses, and some tax that the ATO can never recoup — the so-called ‘zombie company’ problem created by stimulus packages the world over.
But in our case we didn’t want it, just ignored it and sought to do what we’d been doing before the ATO implemented it: planning for reduced activity, drawing on cash reserves we’d already prepared, and living within our means. For us, all it has meant is that we now need to remember in perpetuity that the ATO gave us a cash-flow boost we didn’t want, and which they may claw back but we don’t know when.
Regardless, from a journalistic perspective ‘cash flow’ should not be confused with ‘cash’: we haven’t seen lots of money sloshing around; any tax credits seem to come with strings and have been more of a unilateral administrative arrangement that in our case, we just have to put up with until the dust settles.
So there is a public interest story here, but the only one I’m aware of is one of naive business-owners grabbing cashflow boosts as dividends to fund a champagne Covid lifestyle, and then facing a nasty shock this month as the tax obligations come home to roost. (I don’t know of anyone who has done that, but our accountant does.)
(In another year we might also learn more about how many zombie companies ended up winding up with what inflated tax debt.)
Hope that may help.