Coronavirus: Subsidies drive corporate profits during Delta lockdowns

Government subsidies helped corporate profits post a large gain over a Delta-affected September quarter.

Businesses were forced to close as hospitality sector profits, along with financial services and transport, dropped about 13 per cent during the quarter. Picture: Getty Images

Government subsidies to Delta-affected businesses drove company profits 4 per cent higher over the three months to September despite a slump in sales as a result of lengthy lockdowns in NSW, Victoria and the ACT.

Ahead of national accounts figures on Wednesday, economists said a surprisingly large 1.9 per cent drop in inventories in the quarter – the consensus had been for a flat result – would subtract an outsized 0.7 percentage points from real GDP growth.

Westpac said the bigger-than-expected fall in inventories suggested the economy may have contracted by more than an estimated 2.5 per cent over the third quarter.

Analysts will use Wednesday’s public spending and trade figures to finalise their forecasts, with estimates for a contraction of 2.3-3.5 per cent.

The headline lift in gross company operating profits concealed a wide divergence of fortunes by industry, the seasonally adjusted figures from the Australian Bureau of Statistics show.

Construction profits jumped by 20 per cent in the quarter thanks to a building boom that, beside some brief disruptions, continued apace through the east coast lockdowns.

Professional, scientific and technical services firms – which cover a range of white-collar professional firms, from architecture to legal and accounting services – jumped 17 per cent.

The administrative and support services sector, in contrast, recorded a 25 per cent plunge in profits, while gross profits in the financial services, transport and hospitality segments all dropped by about 13 per cent in the quarter.

With the September quarter plagued by harsh stay-at-home orders to battle the Delta strain of the Covid-19 virus, the ABS said business support payments at the state and Commonwealth level were responsible for the rise in company gross operating profits figures to just under $123bn in the quarter – a new high in the seasonally adjusted series.

Treasury in late October – by which time most restrictions were lifted – estimated that the federal and state governments had committed about $24bn in direct support to businesses and indi­viduals during the Delta lockdowns.

Of the amount, $11.4bn had gone to businesses in a program that split the cost between the federal and state governments, of the $15bn committed.

Absent these subsidies, the impact of Delta restrictions was evident in the 3.5 per cent slump in total quarterly sales versus the June quarter, with hospitality sales income plunging by more than a quarter, the data shows.

Sales in the arts and recreation and “other services”, which includes hairdressers, gyms and the like, fell by more than 10 per cent in the quarter, the ABS figures show.

With hundreds of thousands of workers stood down through the quarter, wages and salaries paid dropped by 0.8 per cent.