2020 Federal Budget CEO Update

by AFIA

24 September 2020

Ahead of the 2020 Federal Budget, today Hon Josh Frydenberg MP, the Treasurer, has made several important announcements.

A new two-stage fiscal strategy that emphasises jobs and growth

This new fiscal strategy will be key to stabilising and reducing the debt-to-GDP ratio, but is a move away from building a budget surplus (for now).

The Treasurer stated that the previous strategy would be damaging to the economy, unrealistic in these conditions and risk economic recovery, essential service provision and job creation. The Treasurer also noted the prior commitment to investing in a stronger economy to boost productivity and participation, strengthening fiscal discipline, containing the size of Government, and achieving budget surpluses.

The new fiscal strategy can be summarised as follows:

1. Phase 1: Build business and consumer confidence, promote jobs and growth, and drive the unemployment rate down (comfortably under 6%):
   a. Allow automatic stabilisers to work freely to support the economy.
   b. Provide temporary, proportionate, targeted fiscal support, including through tax measures.
   c. Structural reforms 'to improve ease of doing business'.
2. Phase 2: Restore fiscal position:
   a. Maintain central focus on jobs and growth and structural reforms.
   b. Shift from fiscal support to stabilise gross and net debt (23.9% cap on the tax to GDP ratio will be retained).
   c. Rebuild fiscal buffers 'to be prepared for the next economic shock'.

Here’s a link to the Treasurer’s speech.

New single, simpler, faster, more cost effective insolvency process for small business

The Treasurer described the bankruptcy/insolvency law reforms as 'adopting key aspects' of the Chapter 11 system in the United States. Importantly, this is not about handing over the keys, but a process to devise a plan with creditors.

Key elements of the reforms include:

• the introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million
• moving from a one-size-fits-all 'creditor in possession' model to a more flexible 'debtor in possession' model, which will allow eligible small businesses to restructure their existing debts while remaining in control of their business
• a faster process, with 21 business days to develop a restructuring plan by a small business restructuring practitioner, followed by 15 business days for creditors to vote on the plan
• a new, simplified liquidation pathway for small businesses to allow faster and lower cost liquidation
• complementary measures to ensure the insolvency sector can respond effectively, both in the short and long term to increased demand and to meet the needs of small business.

Here’s a link to the Treasurer’s media statement which includes a link to a new fact sheet about the insolvency reforms. And here's the fact sheet on the temporary relief for financially distressed businesses, previously announced by the Government.

AFIA is pleased with these announcements made today by the Treasurer, noting the proposals and recommendations we made in our Pre-Budget Submission focusing on three key areas:

1. Initiatives and actions that stabilise the economy and support a business-led recovery.
2. Non-fiscal government support to businesses to promote growth and employment.
3. Partnership initiatives for government and business to rebuild and create a modern economy.