Knowledge Shop: 2021 Risks & Opportunities

With the borders between the State and Territories all but open and 2021 in sight, there is a hunger for a return to ‘normal’. The recent Westpac-Melbourne Institute Index of Consumer Sentiment articulates this desire to ‘get on with things’; sentiment reached its highest level since November 2013 and Christmas spending is expected to be consistent with previous years.

However, the Reserve Bank of Australia cautions that the recovery will be uneven and drawn out and GDP is not expected to return to pre-pandemic levels until the end of 2021. The risks are not limited to the pandemic but Australia’s geopolitical relationships, notably with our largest trading partner, China.

Here’s our key risks and opportunities as we head into 2021: 

Opportunities

Employers & job building

Reducing unemployment is a national priority. While the unemployment rate is expected to decline in 2021, further rises are expected as businesses restructure in response to the pandemic. Wage growth will also be subdued with excess capacity in the market.

New analysis from the Reserve Bank of Australia suggests one in five jobs were saved by JobKeeper. The number of businesses accessing JobKeeper reduced by around 450,000 in October 2020 with the transition to more stringent eligibility requirements. The shift now is to create jobs, not just keeping them. There are a number of incentives for employers to grow employment and skills:

  • JobMaker –  A 12 month “hiring credit” available for jobs created from 7 October 2020 until 6 October 2021.
  • Apprenticeship subsidies – subsidies of 50% of an apprentice’s wage (up to $7,000) are available for new and existing apprentices to keep them employed. The schemes apply to the wages of new apprentices from 5 October 2020 and 30 September 2021, and existing apprentices from 1 January 2020 to 31 March 2021.
  • State based incentives – Tax breaks to encourage employers to employ more workers. The Victorian government recently announced a New Jobs Tax Credit for SMEs of ten cents for every dollar of increased taxable Victorian wages. NSW has reduced payroll tax to 4.85% from 5.45% from 1 July 2020.

HomeBuilder & the housing industry

The HomeBuilder scheme provides a tax-free grant to those building a new home or renovating. To date, around 27,000 homes are expected to be covered by the scheme. The Assistant Treasurer recently announced an extension of the HomeBuilder scheme from 1 January 2021 to 31 March 2021.  For all new build contracts signed between 1 January 2021 and 31 March 2021:

  • Eligible owner-occupier purchasers will receive a $15,000 HomeBuilder grant (down from $25,000); and
  • The property price caps for new builds in New South Wales and Victoria will be increased to $950,000 and $850,000 respectively (from $750,000).

The Risks

COVID-19 rules and regulations

Despite feeling like we are emerging from the pandemic, the promise of a widely available vaccine is still over the horizon and the risk of another wave remains very real. For business, it will be essential to ensure that COVID-19 safe conditions are maintained.

Australia’s relationship with China

Non-compliance with China’s political will comes at a cost. In response to Australia’s public positioning, China has flexed its economic muscle through the disruption of Australian exports.

China is Australia’s largest trading partner by a margin that dwarfs trade with any other single nation (Europe $118bn, ASEAN $110bn and Japan $77bn). The value of exports to China has doubled in the five years since the signing of the China-Australia Free Trade Agreement from $75b in 2014-15 to $150b in 2019-20; imports have also grown significantly up 42% over the same period. There is likely to be more pain to come for Australian exports to China and no short-term resolution or conciliation.

Cashflow crunch

Australian economists are fairly united that there are a number of businesses that may be kept afloat by JobKeeper. These are the businesses that are only surviving by the subsidy. As JobKeeper ends in March 2021, it will be important to ensure that your business stays on top of its debtors and doesn’t become a bank for your customers.

To know more get in touch with one of our expert team members