Australia

Concern JobKeeper has created 'zombie firms' that will never recover from coronavirus shutdowns

A runner passes a closed shop in Crows Nest in Sydney. Source: AAP

More than 910,000 Australian businesses have registered for JobKeeper to keep paying their workers, but some will never reopen.

There are concerns the JobKeeper scheme is propping up unviable businesses known as "zombie firms" that won’t survive once the government support is removed. 

The term refers to companies that are being kept on life support by the federal government’s $1,500-a-fortnight wage subsidy and are likely to collapse once it is withdrawn, even as life returns to normal in Australia. 

More than 910,000 Australian businesses have registered for the scheme to pay 3.5 million workers - revised down from 6.5 million on Friday due to a reporting error.  

Deloitte Associate director Claire Atkinson said the sheer number of businesses signed up to the scheme shows just how many could be vulnerable once the support ends.

“You are talking about a potentially significant proportion of businesses that might fall into that category,” she told SBS News.

Businesses with a turnover of less than $1 billion are eligible for the wage subsidy for up to six months if they have experienced a 30 per cent or more fall in revenue.

Ms Atkinson warned firms in the worst-hit sectors such as hospitality and retail ran a “higher risk” of becoming zombie firms in a state of neither fully recovering nor going bankrupt.

“Businesses have had to have a significant downturn in their revenue to become eligible so you don’t assume that revenue immediately comes back as the economy starts opening,” she said.

The retail sector has already seen a number of brands including Harris Scarfe, EB Games and Karren Millen close more than 600 shops amid the financial strain caused by reduced customer numbers.

But retail analyst from the QUT Business School professor Gary Mortimer said a true picture of business closures won’t be clear until all restrictions are lifted.

“What is a concern is how many of these zombie firms may exist in the economy when the government stops these payments,” he told SBS News.

“We may find a number of brands fall into voluntary administration or some may choose not to open all their stores.”

Restaurants and cafes to close

One hospitality industry group has warned coronavirus lockdown measures could wipe out up to 25 per cent of the sector in Australia, even as restrictions lift.

Café Lounge in Sydney's Surry Hills is among those that have already decided to shut their doors in the face of the economic pressures of the pandemic.

Owner Louis Westgarth had run the licensed live music and comedy venue for almost 10 years before closing down this month.

Cafe Lounge was known for its live music and comedy events before closing down.
Cafe Lounge was known for its live music and comedy events before closing down.
Supplied

He said the decision was one of the hardest he has ever made in his life.

“It was looking likely to be too expensive to carry on,” he told SBS News.

“The idea of being an underground establishment with no street frontage and then trying to do takeaway or turn into a bottleshop wasn’t appealing. It just gets too expensive to be justified.”

The Restaurant & Catering Industry Association of Australia has estimated up to 25 per cent of their industry could be facing permanent business closures.

“We will see a rash of business closures if something isn’t done to continue to support those businesses while there are caps on customers in place,” CEO Wes Lambert told SBS News.

"This could be catastrophic for our industry and when insolvency protections are no longer available."

The vast majority of businesses are expected to able to welcome up to 100 customers by July.

Mr Westgarth said the difficult road ahead prompted his choice to move on, worried his business could be facing up to $50,000 debt over the next six months.

He said making the decision has also come with a sense of relief.

“I’m glad to be out of that state of limbo and I really hope that those carrying on do survive,” he said.

June review

National Retail Association CEO Dominique Lamb said the government subsidies had gone a long way to ensuring businesses remained intact.

“The big question now, is what will happen once that stimulus stops?” she said.

“There are many businesses that would not have survived this period without stimuli like JobKeeper.”

The federal government will review JobKeeper next month to consider whether to extend the scheme beyond the current 27 September cut-off date.

The reporting error revealed on Friday means the scheme will cost $70 billion rather than $130 billion as previously thought, putting further pressure on the government to extend it. 

Treasurer Josh Frydenberg has ruled out wholesale changes but suggested on Monday the tourism industry could need support for longer. 

Opposition Leader Anthony Albanese has called for a “transition” away from the wage subsidy to avoid the "shock to the economy" of suddenly removing the scheme.

Deloitte has also warned such an abrupt halt would result in simply kicking the "unemployment can" down the road.

A rise in unemployment from 5.2 to 6.2 per cent last month saw about 595,000 people forced out of the workforce alone.

Australian Retailers Association CEO Paul Zahra said it’s no secret that many retailers have taken a big hit because of the coronavirus.

"The scheduled end of the JobKeeper period after September will create another testing moment for our economy and Australian spending patterns," he told SBS News.

"We predict retailers will need some level of ongoing support."

People in Australia must stay at least 1.5 metres away from others and gatherings are limited to two people unless you are with your family or household.

If you believe you may have contracted the virus, call your doctor (don’t visit) or contact the national Coronavirus Health Information Hotline on 1800 020 080. If you are struggling to breathe or experiencing a medical emergency, call 000.

SBS is committed to informing Australia’s diverse communities about the latest COVID-19 developments. News and information is available in 63 languages at sbs.com.au/coronavirus.

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