This document was added or updated on 21/05/2020.
Classifying boosting cash flow for employers in Australia’s economic accounts
Referring to international manuals and guidance, the Australian Bureau of Statistics (ABS), has determined that Boosting Cash Flow for Employers will be classified as other subsidies on production which is a payable tax credit within Australia’s economic accounts. This note (footnote 1) describes the Boost Cash Flow for Employers scheme and the rationale for this classification.
Boosting Cash Flow for Employers scheme
From 28 April 2020, “the Government is providing temporary cash flow support to small and medium businesses and not-for-profit organisations that employ staff during the economic downturn associated with COVID-19 (novel coronavirus)” (footnote 2). The scheme is estimated to cost $31.9 billion and provides tax-free amounts between $20,000 and $100,000 to eligible businesses delivered as tax credits based on an eligible business’s withholdings. These amounts, will be automatically credited to the eligible business and delivered as two separate “boosts” during 2020.
The Boosting Cash Flow for Employers scheme will be administered through the tax system as credits against tax liabilities calculated from the activity statement. In the event their credits exceed the eligible business’s tax liabilities, the excess will generally be paid to the eligible business (footnote 3). Payments to eligible businesses are tax free and do not need to be repaid in the event that economic conditions improve.
Eligible businesses receive at least $10,000 and no more than $50,000 per ”boost”. For those whose withholdings fall between these thresholds, credits received will be equal to their withholdings. Those whose withholdings fall below $10,000 will be “topped up” to that amount, while credits received by those whose withholdings exceed $50,000 are capped at this amount. The first “boost” is delivered following lodgement of activity statements for March, April, May, and June 2020 (monthly lodgers) and activity statements for the March and June Quarter 2020 (quarterly lodgers).
A second “boost” with same thresholds will be delivered to eligible businesses who remain active. For monthly activity statement lodgers, this will be delivered following lodgement of their June 2020, July 2020, August 2020 and September 2020 activity statements. Delivery to quarterly lodgers will occur after lodgement of their June and September Quarter 2020 activity statements.
Payable or non-payable tax credits
A tax credit is defined as “an amount subtracted directly from the tax liability due by the beneficiary household or corporation after the liability has been computed” (2008 SNA, para 22.95). The main conceptual question when classifying a tax credit is whether it is payable or non-payable (2008 SNA, para 22.96-97). The latter comprises a reduction in tax revenue, while the former is recorded as an expense (either subsidies, social assistance benefits in cash or miscellaneous current transfers) (IMF GFS, para 5.31; Table A7.4).
The difference between a payable or non-payable tax credit is the extent to which any amount that exceeds the tax liability is paid to the beneficiary. A tax credit is considered payable if any amount which exceeds the tax liability is paid to the beneficiary. Payable tax credits “should be considered as expense and recorded as such at their total amount” (2008 SNA, para 22.97). All other tax credits are considered non-payable and recorded as a reduction in the relevant tax category as they are limited to the size of the tax liability (2008 SNA, para 22.95).
The Boosting Cash Flow for Employers scheme is a payable tax credit as it is possible for the tax credit to exceed the liability of the beneficiary. Although the tax credits received by any one beneficiary (an eligible business) may not equal or exceed its liabilities, the fact there is a minimum credit of $10,000 per “boost” is sufficient to meet this requirement.
Subsidies, social assistance benefits in cash, or miscellaneous current transfers
Subsidies are defined as “current unrequited payments that government units, including non-resident government units, make to enterprises on the basis of the levels of their production activities or the quantities or values of the goods or services that they produce, sell or import” (2008 SNA, para 7.98). While subsidies may influence the level and/or price of goods and services, they may also influence “the remuneration of the institutional units engaged in production” (2008 SNA, para 7.98). Subsidies must have an influence on production—defined as “an activity, carried out under the responsibility, control and management of an institutional unit, that uses inputs of labour, capital, and goods and services to produce outputs of goods and services” (2008 SNA, para 6.2)—in some way.
Subsidies are either subsidies on products or other subsidies on production. The Boosting Cash Flow for Employers scheme cannot be classified as subsidies on products as “boosts” are not “payable per unit of a good or service” (2008 SNA para 7.100). Other” subsidies on production comprise “subsidies except subsidies on products that resident enterprises may receive as a consequence of engaging in production” (2008 SNA, para 7.106, emphasis added).
The Boosting Cash Flow for Employers scheme is classified to other subsidies on production. To receive “boosts”, businesses must file activity statements—which indicates a relationship with productive activities. The scheme therefore subsidises productive activities by specifically influencing the remuneration of institutional units engaged in production. This holds regardless of whether the eligible business is a market or non-market producer. Ultimately, the scheme is a mechanism through which government temporarily subsidises the productive activities of all producers—including not-for-profit entities.
Social assistance benefits in cash are defined as “current transfers payable to households by government units or NPISHs to meet the same needs as social insurance benefits but which are not made under a social insurance scheme requiring participation usually by means of social contributions” (2008 SNA, para 8.110). Examples of social assistance benefits in cash are unemployment benefits and the age pension.
The Boosting Cash Flow for Employers scheme is not classified to social assistance benefits in cash. “Boosts” delivered under the scheme are not paid to households (they are paid to corporations as tax credits). They do not meet the definition of social assistance benefits in cash.
Miscellaneous current transfers are defined as “current transfers other than insurance-related premiums and claims, current transfers within general government and current international cooperation” (2008 SNA, para 8.129). Important examples of such transfers include current transfers between the central bank and general government, current transfers to NPISHs and current transfers to households. The amounts involved are too significant, and their nature too ill-fitting, to be classified as miscellaneous current transfers.
1 This note has been compiled by Ben Loughton <back
2 https://treasury.gov.au/sites/default/files/2020-04/fact_sheet-boosting_cash_flow_for_employers.pdf, p. 1. <back
3 https://treasury.gov.au/sites/default/files/2020-04/fact_sheet-boosting_cash_flow_for_employers.pdf, p. 4 <back