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Businesses face cash crunch in March 2021 despite tax cuts

Adrian Flores
Adrian Flores
19 October 2020 2 minute readShare
Businesses face cash crunch

Businesses will still be facing cash flow struggles between now and the end of March 2021 even with the extra tax cuts announced in the recent federal budget, according to a new report.

The latest Deloitte Access Economics Business Outlook noted that, for businesses, the tax cuts would be offset by the dialing back of JobKeeper and JobSeeker, the drying up of money from the early access to superannuation scheme and the end of a range of mortgage and rent deferrals.

Further, it said not much money is currently moving around in the Australian economy, which has taken momentum away from both wage and price inflation.

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“Businesses haven’t had much pricing power, and now they have less. Ditto workers. So, wage and price inflation will stay in the slow lane until unemployment is comfortably below 6 per cent. That looks like being sometime during 2024,” Deloitte said.

Unemployment to not recover for a while

 

Deloitte said unemployment rate will not return to 6 per cent until early 2024 and comfortably under that threshold until late 2024, and that a further 60,000 people will be expected to lose employment in 2021. However, a bounce-back will be on the cards in 2022, with 210,000 gaining employment.

In addition, more than 200,000 people will be expected to return to the labour force in 2021, and another 150,000 in 2022.

Post-COVID predictions by industry

The Deloitte report predicted that 2021 looks set to continue the developing recovery in sectors smashed by the lockdowns of 2020.

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“If we can keep COVID at bay, then the likes of accommodation, food, entertainment, airlines and others will be climbing back from the abyss,” the report said.

“And there’s more — by 2022, tourists and foreign students will be here in greater numbers. So, yes, there’s some cavalry coming.”

However, even with more businesses able to open, the report also noted that the fading emergency supports for the economy means that 2021 will look more like a “usual” recession, with sectoral damage starting to centralise in the likes of manufacturing, as well as in housing and commercial construction, while sectors reliant on discretionary spending (including retail and entertainment) will be on the slow train back towards normal.

As for 2022 and beyond, Deloitte predicts the coronavirus crisis will leave behind a huge hangover, with the Australian economy permanently more than 3 per cent smaller than its pre-COVID forecasts, largely due to closed borders leaving its population almost 600,000 smaller than without COVID.

“The arc of our nation’s history is bending before our very eyes. A smaller and older Australia awaits us. That isn’t necessarily bad, but it’s definitely big; it will reshape the nation’s future in a bunch of ways,” the report said. 

“The longer-term outlook is worse for all those selling into Australian markets. It’s our exporters, miners and farmers in particular who have less to fear on this score.

“It’s most challenging for those industries whose market size is determined by the increase in population. Their pain will linger.”

Businesses face cash crunch in March 2021 despite tax cuts
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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