Federal Budget & Post Covid-19

The theme of this year’s Budget is creating jobs, rebuilding our COVID-19 impacted economy

The Treasurer, Josh Frydenberg, handed down a historic Federal Budget. and introducing measures designed to stimulate business investment and consumer spending.

KEY ECONOMIC TAKE OUTS:

• The Budget deficit for the current year is estimated to be a record $214 billion, or 11% of Australia’s gross domestic product (GDP), with debt expected to reach 55% of GDP.

• Australia’s net debt burden is estimated to exceed $1 trillion.

• The Government has announced a proposed total of $112 billion in new measures, including the JobKeeper extension.

• The focus is on job creation, the centrepiece being a new jobs initiative,

JobMaker and broad spending measures to get unemployment back below 6%.

Proposed super reform measures:

The Government has announced that it will spend $159.6 million over the next four years to implement a number of reforms to the superannuation system that it claims will collectively save fund members $18 billion in fees and other costs between now and 2030. The Government’s super reforms, broadly labelled as the Your Future, Your Super package, have four key elements:

1. Your Super Follows You

To assist in reducing the number of multiple super accounts in the system, and better protect people’s retirement savings from the costs of having unintended multiple accounts, the Government proposes that from 1 July 2021, when a person changes jobs, their super account will be ‘stapled’ automatically to them. At the time of starting a new job, and unless a member decides otherwise, the employer will pay superannuation contributions into an employee’s existing ‘stapled’ fund. If an employee does not have an existing superannuation account (e.g. is new to the workforce) and does not make a decision regarding a fund, the employer will pay the employee’s superannuation into the employer’s nominated default superannuation fund. This will then become their stapled fund and will continue to be their super fund, even if they change jobs, unless they elect to choose an alternative new fund.

2. Empowering Members

By 1 July 2021, the Government will develop a new interactive online ‘YourSuper’ comparison tool, which will be administered by the ATO, to allow people to research and select a MySuper fund to manage their super savings.

Members will be able to look up and compare the performance and fees of all MySuper products in a single place, with underperforming products clearly marked.

The YourSuper comparison tool will be based on information that super funds report to the industry regulator, APRA, with information about product performance updated quarterly.

3. Holding funds to account for underperformance

The Government proposes that to assist fund members maximise their retirement savings by protecting their accounts from underperforming funds, MySuper products and other trustee-directed superannuation products will be subject to an annual objective performance test, based on net investment returns.

A fund determined to be underperforming will be required to notify its members of this assessment and provide them with information and the tools to switch to a better performing fund.

Underperforming funds will also be listed on the YourSuper comparison tool until their performance improves. The YourSuper tool will also assist members understand and compare fees and returns across various super funds to assist them in determining if their current fund is appropriately performing and delivering value.

4. Increasing disclosure, transparency and accountability

The Government intends to strengthen superannuation’s sole purpose test to ensure super funds and their trustees act in the best financial interests of their members.

In strengthening the duty owed by trustees,

they will need to establish that there was a reasonable basis for expenditures, outlays and related actions being consistent with members’ best financial interests.

The Government will also require super funds to provide their members with more and enhanced information regarding how the fund is managed.

Super funds are now required to hold Annual Members’ Meetings annually. These meetings allow the trustee to explain how the fund has performed in the last financial year and answer any questions that members have. From 1 July 2021, funds will be required to provide certain information to their members in advance of the Annual Members’ Meeting. This will include, amongst other material:

• The Fund’s annual report and outcomes assessment • A copy of the member’s most recent fund statement • Details of any Significant Event Notices issued during the last year; and • Details of certain fund expenditures, related to marketing and promoting the fund, any donations made, or payments to industry bodies or trade associations.

Superannuation Guarantee (SG)

Pleasingly, the Government, for now at least, has not acted to announce any change to the already legislated SG increases, which are due to see the SG rate increase from the current 9.5% to 10% from 1 July 2021, with further gradual increases to 12% in 2025.

It is broadly speculated that the Government may make an announcement in relation to these SG rate increases in concert with its response to the recent Retirement Income Review, in the near future.

Early Release of Super Scheme

The Government restated in the Budget the previously announced extension of the COVID-19 early release of superannuation scheme to 31 December 2020, with no reference to a further extension of the scheme beyond that date.

Other key announcements:

• Stage 2 personal income tax cuts will be brought forward from 1

July 2022 to 1 July 2020. • Businesses with turnover of less than $5 billion can write off the full value of eligible assets in the first year they are used or installed, until 30 June 2022. • Companies with turnover of less than $5 billion can carry back losses incurred in the 2019-20 to 2021-22 years. • A new JobMaker measure incentivises employers to hire young workers.

Important: these Budget announcements are proposals only and shouldn’t be considered final until they are passed by the Senate. We’ll keep you informed via our website as these developments occur.

Your new business plan: Being ready for anything

BUSINESS RESILIENCE IN COVID-19

If you want to survive, let alone thrive in a post-pandemic world, it’s time to put your business continuity plan under the microscope.

Hitting with a terrible force, COVID-19 and its associated lockdown sent shockwaves through the Australian economy. As businesses scrambled to react, business continuity planning — previously an often-overlooked subject — suddenly became a top priority, as well as a reminder that economic survival can hinge on a single concept: preparation.

Ready for anything

“The pandemic has highlighted the importance of having an up-to-date business continuity plan to prepare for any form of crisis or disruption-type event,” says Risk Management Institute of Australasia CEO Jason Smith.

“Every crisis is unique in the way it creates impacts on an organisation: the speed that those impacts ripple through the business, the unforeseen and amplified impacts on other parts of the business, and the overall severity of the combined impacts.”

Of course, COVID-19 was not your average crisis — say, the office phone system falling over, or a break-in — and for Smith it reinforced the need for businesses operating in today’s complex, interconnected environment to expand their scenario planning beyond the obvious.

“COVID-19 was a great example of that complexity,” he says. “It started as a health and safety event but quickly went well beyond that, with seismic impacts. In today’s digitised and globally connected organisations, businesses don’t exist by themselves — they exist within complex economic and societal systems, and within integrated business ecosystems.” So what exactly should a best-practice disaster planning process entail and how can Australian businesses better prepare for the next shock to the system? Here are your areas of top priority.

Secure your supply chain

One spectacularly visual example of supply chain shock was Australia’s run on toilet paper in March, as supermarkets struggled to stay on top of panic buying. They weren’t alone. Thousands of businesses around the country experienced similar challenges accessing materials and products, as coronavirus wreaked havoc with logistics here and abroad.

To identify and mitigate risks, Smith advises carrying out an end-to-end ‘x-ray view’ of your supply chain.

“Now is a good time to assess whether additional or alternative supplier arrangements are required,” he says. “In the past,

many companies were driven by cost efficiencies — in the future, there’ll be a much greater focus on overarching supply chain resilience.”

Embrace smart tech

As the COVID-19 shutdown saw employees in their tens of thousands decamp from their workplaces, it was digital technology — mobile devices, video conferencing and cooperative working applications — that allowed them to work from home, mitigating for many the economic impact of the crisis.

One notable finding from this switch, Smith says, was that companies with cloud computing models typically fared better than enterprises running on-premises data centres and solutions.

Following on from that, studying how technology can support remote working in your business should be a priority, Smith says. “Companies need to continue to make investments in ICT infrastructure that enables their operations to be as agile and flexible as possible.”

Build a ‘can-do’ team

That investment in IT goes hand in hand with building a strong, flexible workforce able to adapt to altered conditions and changing customer behaviours, says NAB Group Executive, People and Culture Susan Ferrier.

“Businesses should focus on new ways of working that meet business requirements, allow employees to collaborate from anywhere and support the organisation to keep operating efficiently when adverse events occur,” Ferrier says. Establishing strong channels of communication is a priority: they’re the key to remaining engaged with your team when a crisis unfolds and during the crucial recovery phase.

At the executive level, maintaining a close-knit cohort who can work through the challenges together and take decisive action is a must.

“Your leadership team must be able to prioritise activities and spending requirements, execute emergency responses, pivot rapidly when required, and undertake continuous contingency planning,” Ferrier says.

“That’s a lot to consider when something happens quickly, so it’s vital to have done the work beforehand — to have strong plans in place, with agreed levels of responsibility and communication lines, that key leaders are already across.”

Obey the new rules of hygiene

The term ‘social distancing’ has entered the vocabulary, and frequent hand washing and sanitising are now the norm. Instead of viewing these as

pandemic-specific practices, businesses should consider implementing permanent measures to improve health and hygiene in the workplace.

“Policies and procedures may have to be revisited, to reflect the additional risk control measures we now realise we need to keep employees and customers safe,” Smith says. “Some companies may have to improve their cleaning practices or rethink hot-desking arrangements.”

As for the mindset that employees should turn up for work even if they’re dead on their feet — those days are gone, Smith adds.

Prepare for financial shocks

Many businesses have watched revenue plummet during 2020, while others have simply been unable to trade. This has in turn caused “deeply negative” business conditions, at levels “last seen coming out of the GFC”, according to NAB’s Monthly Business Survey May 2020.

Being ready to meet financial fluctuations can be the difference between sinking and swimming. In practice, this means examining the potential impact of a range of scenarios and reviewing your working capital requirements accordingly.

That may mean seeking business finance, to manage cash flow challenges; having a business overdraft as a source of extra short-term funds; or putting in place invoice finance, which allows you to access up to 85% of approved unpaid invoices. Your business may also be eligible to access government-backed assistance, such as the Coronavirus SME Guarantee Scheme, which provides unsecured loans of up to $250,000 to eligible businesses, or the NAB Business Support Loan, which utilises the Guarantee Scheme.

The COVID-19 crisis also drove a rush from cash, with tap and go transactions instead encouraged to such an extent that “The Royal Australian Mint has seen ‘virutally no demand’ for coins in 2020 as physical retail closed down”, according to The Guardian. As such, having the merchant technology to support electronic payments is essential for enterprises of all sizes and stripes, Smith says.

Get set to reap the rewards

While a rigorous continuity plan can help business owners cope more easily when a crisis strikes, the process has benefits beyond mitigating damage. A more resilient enterprise will be better placed to take advantage of post-pandemic economic opportunities.

“Every time you undertake a business continuity planning exercise, you learn something new about your organisation,” Smith says. “It’s all about good management — setting yourself up to manage the downside risk and maximise your chances of success as you move forward.”