SYDNEY, Australia – The Federal Government of Australia makes efforts to overhaul bankruptcy laws and loosen up lending laws for businesses to stimulate economic revival after the pandemic.
Federal Treasurer Josh Frydenberg announced on Friday that the Government is eyeing changes on the lending laws for small businesses to help revive the COVID-19 struck economy. These lending legislation reforms are set to loosen up the regulatory burden and cut the costs and time required for small businesses to access credit.
The COVID-19 pandemic led the Australian economy to a devastating economic recession after nearly 30 years. This economic fall profoundly affected households, industries, and other businesses that resulted in millions of financially struggling Australians and thousands of lost jobs.
The Federal Government has already legislated and enacted various programs and relief measures to ease the pandemic’s adverse effects on its citizens’ lives. During the peak of the COVID-19 pandemic, the Government was active in providing financial relief to millions of Australians through payment schemes such as the JobSeeker, JobKeeper, and superannuation early release programs. For months, these measures maintained stable household finances over the whole country.
The Government also partnered with the country’s biggest banks to aid the citizens through extensive bank deferrals, interest cuts, and thousands of approved loans.
The country is already slowly recovering from the pandemic, recording fewer cases and greater recoveries. The economy and the industries under it are also already opening as each state’s borders are also opening. However, the economy’s recovery is a different story.
To stimulate economic revival from the pandemic-motivated recession, the Federal Government manages laws that involve the welfare of the heavily-affected small businesses.
Federal Treasurer Frydenberg highlights that the country’s flow of credit is a vital consideration for the economy’s revival. However, the current regulatory framework for lending, especially for businesses, does not support this move.
In recent months, banks have cut their credit interests to all-time lows. Credit now appears to be more affordable with all of these cuts. However, consumers have also observed that lending is much more difficult now. Stringent lending laws even discourage consumers from applying and accessing credit.
The Federal Treasurer says that banks should be more cooperative in releasing credit access to consumers, especially at this time. He said that the move to change the lending laws would allow more Australians to better and more conveniently access loans or credits through a more streamlined regulatory process that reduces the cost and time needed for processing.
This announcement from the Federal Treasurer shortly came after the Government revealed its bankruptcy reforms. The revamp of bankruptcy laws is set to help pandemic-struck small businesses recover from the catastrophe.
According to Federal Treasurer Frydenberg, this reform is the biggest and most significant reform the laws had had in almost 30 years. Under the reform, small businesses will be operating in new insolvency laws patterned from the US-style.
The changes in the insolvency laws will allow small businesses with under 1 million dollars of liabilities will be allowed to maintain operations while developing reconstruction plans. According to Frydenberg, this reform is based on the US-style that allows businesses to reconstruct their remaining debts while still having full control of their operations, rather than being handed to administrators.
During the reconstruction process, creditors can plan on allowing the business operations to be overhauled. If creditors voted yes on the overhaul, these businesses could take on a cheaper and more simple and convenient liquidation process.
However, a requirement is that all payable and due employee entitlements must be cleared before the creditors cast on their votes. This requirement ensures that employees’ welfare is protected even at the cease of the business’ operations.
These reforms will be effective come January of next year. This announcement also follows the Government’s move to extend the temporary insolvency and bankruptcy protection laws until the end of this year.
These moves to provide better support to small businesses received a warm welcome from Small Business Ombudsman, Kate Carnell.
Carnell emphasized the need to give control back to small business owners. She cited that in a report dated July this year, many small businesses expressed not having the chance to manage their businesses, especially in waiting for bankruptcy to process.
The Ombudsman also became particularly challenging the Federal Government to support 5,000 dollars’ worth of financial advice for small business owners. This take is moved as an action to Deloitte’s estimated number of at least 240,000 small businesses being at risk of closure.
Meanwhile, the Australian Government has also announced on Friday that the surges on unemployment and business closures led the national debt to drastically increased to up to 25 per cent of the country’s Gross Domestic Product (GDP). The government debt ended at a whopping 491.2 billion Australian dollars or at least 24.8 per cent of the whole country’s GDP this year. This percentage jumped up compared with the June 2019 percentage of 19.2 per cent.
Frydenberg estimated the budget deficit of the last fiscal year to have reached 85.3 billion Australian dollars and is still expected to skyrocket to 185 billion dollars in the current fiscal year that will end in June 2021. This number is three times higher than the recorded 54.5 billion Australian dollars in the 2008 global crisis, and the highest the country has seen since World War Two.