The fear-driven fall in global sharemarkets, teamed with an oil price slump, makes a significant Australian downturn a certainty.
But the unofficial word doing the rounds of Canberra is that the coronavirus will not peak until around April, so the repercussions are likely to last for most of 2020.
Large companies will cope but large sections of the employment driver of Australia – small and medium-sized business – will be severely damaged or destroyed.
Confirming the danger Morgan Research reports that in mid-February around one in six, or 15 per cent of Australian businesses, had already been affected by the coronavirus. This comes after over a quarter of Australian businesses were hit by bushfires. The virus casualties include around two-fifths of manufacturers; a third of education and wholesale enterprises, plus the accommodation and food industries. These are the employment powerhouses in this country.
But we might be lucky.
Prior to the virus crisis, the government began an important and praiseworthy first step to speed up the money flow in the employment areas of the Australian economy.
If there is a political will, that first step can be speeded up and improved to provide a $7 billion plus annual boost where it is most needed.
Indeed, apart from simply spraying money at suffering enterprises or massive tax reductions, the government has a limited range of options.
Lower interest rates will come into effect but are at best are a waste of time and at worst they will make the position worse.
Originally the proposal to speed up the money flow was aimed at stimulating business and employment over the longer term. But the game has changed and by April a vast number of smaller enterprises will be on their knees.
Accordingly, cash flow acceleration becomes a front line weapon against the severe economic repercussions that are looming and dangerous delays will leave the government open to another set of bushfire-style blows.
To be fair to the drivers of the plan, small business minister Michaelia Cash and finance minister Mathias Cormann, the current timetable and measures were devised before the coronavirus impact was known.
Some large corporations are lobbing vulnerable government politicians with incredible intensity on this issue, so Cash had to fight hard to insert essential financial penalties (albeit small ones) into the plan, which is the subject of an exposure draft that ends on March 6.
The plan aims to speed up the payments of 2500 of Australia’s large businesses, including foreign companies and government entities with turnover above $100m
Entities in each large corporation (the drafting needs to be clearer) will report both on their standard payment terms for their small business suppliers (how quickly they say they will pay) and their performance (how quickly they actually pay).
In addition, they will need to report on whether and how much they use supply chain financing arrangements (where small businesses can opt to be paid quicker if they accept a reduced payment).
The performance reporting will cover:
• The total proportion (number and value) of invoices paid in the calendar day periods of 1-20 days, 21 to 30 days, 31 to 60 days and 60-plus days
• The shortest and longest payment terms the entity offers, and any changes made to these terms during the reporting period
• The total proportion (number and value) of invoices paid within the contract terms
• Whether the entity offers any form of supply chain finance, reverse factoring or discounting and, if so, details of that arrangement and the total proportion (number and value) of invoices where these arrangements were used
There will be financial penalties for those who do not report and/or those that report incorrectly, and a special registrar is to be set up to administer the project. .
The steps required to make to convert the initial proposal into a much needed economic boost for small and medium business are easy.
First the government must set out an aim which states that large Australian enterprises must pay their small and medium business suppliers in 30 days from receipt of invoice or faster. Those that have not adjusted their policies by, say, September 30 will be banned from government contracts.
The enterprises have the information required at their fingertips, but some, understandably, will take a few months to adjust their payment times.
The public servants wanted time to get their systems right so incredibly the proposed legislation does not apply until January 1; much too late.
Fortunately, the Australian Building and Construction Commission has the software required and its developers can adjust it so there is no reason not to start on a trial basis by April 30 with full implementation by June 30.
The proposed legislation only applies to small businesses with turnover of $10m or less. This needs to be increased substantially so medium sized businesses are also covered.
Given that our large enterprises used a voluntary list prepared by the Business Council of Australia to conceal their bad behaviour I think government contract bans will be required. But maybe I am wrong. I certainly hope so.
Those wanting a voluntary system will be helped if every large enterprise names their chairman so that the badly behaving boards can be followed.
The nation must hope that the draft legislation is turned into real action and that the lobbyists are defeated because global share markets are giving us a clear message.
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