What happens when money from the government eventually stops?

Few could argue that the Australian government’s stimulus packages in response to the COVID-19 pandemic have been generous and, in many cases, timely.

While there have been some detractors – such as members of the community that have not received benefits because they do not qualify – in the main, the benefits have helped render essential assistance to Australians at an unprecedented time.

Rarely have we seen such bipartisan commitment to ensuring financial assistance flows to Australians who, through no fault of their own, have found themselves either out of work or having working hours and income severely slashed.

To recap, the primary benefits the government is providing include:

1. JobSeeker Payment
The current JobSeeker Payment, which is $565.70 per fortnight for a single person and $510 per fortnight each for members of a couple, is the government’s main income support payment for the unemployed and underemployed. To be eligible for the JobSeeker Payment a person must be between 22 and the Age Pension age, meet mutual obligation requirements, and have income below a prescribed limit.

JobSeeker Payments will continue to be available to the self-employed at least until the end of December 2020.

From 25 September 2020, asset testing will be reintroduced, the income test threshold will be increased to $300 per fortnight with a 60 cents in the dollar taper rate. For every dollar an excess of the threshold, the taper rate for partner income testing will increase slightly from 25 cents to 27 cents in the dollar and mutual obligation requirement for JobSeeker will be required.

There are no changes to the income-free area and income test if you get the JobSeeker payment as a principal carer.

2. Coronavirus Supplement

From late September, the Coronavirus Supplement, currently $550 per fortnight, will reduce to $250 per fortnight. This supplement is an additional flat payment payable to each person who qualifies for the JobSeeker Payment, and certain other government income support payments. The supplement is payable to all JobSeeker Payment recipients, including those in receipt of the benefit in its previous guise as the NewStart Allowance, before COVID-19 struck.

The reduced supplement will continue to be payable until December 2020 providing a person remains eligible for a JobSeeker Payment.

3. Coronavirus Support Payment

The Coronavirus Support Payment is two separate tax-free payments of $750 each payable to all social security, veteran affairs and other income support recipients, and eligible concession cardholders, including the Commonwealth Seniors Health Card.

To qualify for the first payment, a person had to be eligible at any time between 12 March 2020 and 13 April 2020. The first payment was made in early April 2020.

The second payment was made to those who qualify for income support payments and a concession card on 10 July 2020.

However, people who are eligible to receive the Coronavirus Supplement of $550 per fortnight will not be eligible for the second support payment of $750 paid in July 2020.

The payment is made automatically.

4. JobKeeper Payment

The JobKeeper payment is a wage subsidy paid to eligible employers that have sustained a reduction in turnover, generally of 30 per cent or more, because of the coronavirus.

From September, it will be split into two tiers – one for full-time workers and one for part-time workers, based on average working hours worked in the four weeks immediately prior to 1 March 2020.

The payment will reduce from the present $1,500 per fortnight for each eligible employee, to $1,200 per fortnight from 28 September. Employees that had worked less than 20 hours a week will receive $750.

The payments will reduce again to $1,000 a fortnight, and $650 a fortnight for people working fewer than 20 hours, from 3 January 2021 for first three months of 2020.

Employees eligible to be nominated for JobKeeper Payment include full-time, part-time, and casual staff that have been engaged for more than 12 months, as of 1 March 2020.

Employers must nominate their employees to participate in the scheme on an “all in, all out” basis. That is, employers cannot select only certain employees for whom the payment will be made. However, an employee may decline to be nominated.

A condition of the JobKeeper payment is businesses will have to demonstrate that they’re still sustaining reduced turnover each quarter, on pre-pandemic levels, to remain eligible for the program after September. For business with a turnover of less than $1 billion, their turnover must have reduced by 30 per cent or more, for those with turnover of more than $1 billion, their reduced turnover must be at least 50 per cent, and for not-for-profits and registered charities, 15 per cent.

Self-employed sole traders are also eligible to apply for the JobKeeper payment, provided they have met the decline in turnover requirement.

The forgoing stimulus payments are not an exhaustive list of what is available.

In addition to the measures mentioned, state governments, the Australian Taxation Office, insurance companies, banks, financial institutions, and landlords are providing a range of initiatives to help individuals and businesses navigate the unprecedented times in which we find ourselves.

However, what happens when the money eventually stops?

For individuals receiving the Coronavirus Supplement on top of their JobSeeker Payment, their payments will be reduced once 25 September comes. That will be a brutal shock for many who may have expanded their spending habits to consume their available income.

Belt-tightening will be very difficult for many, particularly for those that find themselves unable to return to their former job or cannot get the hours of work they would really like.

And, for those that have been receiving the JobKeeper Payment of $1,500 per fortnight through their employer, they may find their income stopping if their employer is unable to re-engage them.

The Australian Taxation Office, insurance companies, banks and even landlords in some cases, have allowed payments to be deferred in one form or another. But unless the payment has been waived or forgiven, once things return to “normal”, payments will need to be made on the interest accrued on any deferred amount.

So, what should people be doing to prepare themselves financially for life after COVID-19, whenever that may be?

For advisers with clients who have been the beneficiaries of any of the abovementioned payments or waivers, here are some things you may wish to discuss with your clients:

1. Encourage clients to save at least a part of what they are currently being paid.

2. Allocate a portion of each income payment to reduce debt – particularly credit cards and other forms of consumer credit that attract high rates of interest.

3. Advise against the use of credit cards to cover living expenses, as this approach will simply “kick the can down the street”.

4. Propose to clients who expect to be unemployed for an extended time, to “practice” living off the basic JobSeeker Payment now. Use the Coronavirus Supplement to pay off debt or start to build an emergency fund.

5. Suggest that those who are not working, or are working reduced hours, could look to build skills that will make them more attractive to a future employer.

6. Review expenses and eliminate the things the client does not need, such as unwanted gym memberships and subscriptions that are no longer in use.

7. Explore additional ways to turn unwanted things into cash, including selling items on Facebook Marketplace, eBay or Gumtree – and use the cash to build an emergency fund or pay off debt.

The financial assistance the government has provided has been a lifeline for many Australians but it cannot last forever. Therefore it is important to take the right steps now to help clients readjust their finances to prepare for the “new” normal.

Mark Teale and Peter Kelly, technical support team, Centrepoint Alliance