27 September 2023

Zombie apocalypse: Businesses dragging back the economy

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Killian Plastow* says ‘zombie businesses’, which in ordinary times would have been put to rest months ago, could be a plague on the economic recovery.

Zombie businesses’ with no hope of survival are eating into valuable resources and jeopardising Australia’s economic recovery.

If Government support programs aren’t redesigned to account for the swelling horde of undead employers, countless Australians will face a devastating blow to their income.

The term zombie business refers to firms that should be shuttered, insolvent and in administration — yet are still legally trading.

They were created by the economic witchcraft of the Federal Government’s Coronavirus support packages, specifically JobKeeper wage subsidies and changes to insolvency laws.

So far, these zombie businesses have been benign — and even beneficial — according to Chief Executive of CreditorWatch, Patrick Coghlan.

“What’s happening at the moment was necessary, because it’s not just about keeping businesses going, it’s about getting money to the individual,” Mr Coghlan said.

“The problem is these businesses have no future once Government support is removed.”

When their life support is switched off on 27 September the zombies will collapse, leaving their employees out of a job.

Data from CreditorWatch shows the number of businesses falling into administration this year lagged 2019 by a bit over 30 per cent in April and May.

That suggests roughly 600 businesses that should have collapsed already this year have not, and by September that number could be closer to 2,000.

Although that means 2,000 businesses have continued to keep employing workers and paying their wages, Mr Coghlan said it can’t continue indefinitely.

That’s because keeping them alive is making it difficult for Government and lenders to focus on businesses that will survive, grow and employ more Australians.

A new strategy is needed to lay the zombies to rest, without hurting the people they employ.

“Throwing good money at bad businesses is just not an option,” he said.

“We’ve done it, and maybe we can extend it for a few months, but eventually we have to turn off that artificial stimulus.”

The JobKeeper program currently supporting these businesses is due to end on 27 September.

That date coincides with the date JobSeeker unemployment benefits are slated to return to their pre-Coronavirus level of $550 per fortnight from the current, ‘turbo-charged’ $1,100 per fortnight.

For unemployed Australians, that will mark a 50 per cent drop in income.

For those receiving a full $1,500 JobKeeper payment, being forced onto JobSeeker marks a two-thirds drop.

With thousands of workers on the books of doomed zombie businesses, September will likely drive a big spike in unemployment, Household Finances Program Director at the Grattan Institute, Brendan Coates said.

The victims will sadly be in the demographic that sees their income drop by roughly 60 per cent.

“You’ve got this huge chunk of money about to come out of the economy pretty quickly, and that’s the big problem,” Mr Coates said.

Instead, he said the Government should consider extending the JobKeeper program — but only to businesses who needed it, and only until the end of December.

Meanwhile, Mr Coates said JobSeeker payments should stay at $1,100 for a few months after that, gradually tapering down to a smaller rate.

These changes to Government’s support programs will keep a lid on unemployment and ensure money is still circulating through the economy.

At the same time, workers who face joblessness will not be forced from $1,500 a fortnight to $550 a fortnight in the space of one day, easing their transition as they look for new work.

“One of the problems with JobKeeper is that it’s great at putting the economy into deep freeze, but not good when you’re thawing it out,” Mr Coates said.

A gradual tapering, rather than an abrupt cliff’, will better enable that transition without hurting workers’ wallets, or ‘aggregate demand’.

That might require Government to spend more money on both programs than they currently expect, but the results will be worth it, Mr Coates said.

The risks of doing too much are less than the risks of doing too little,” he said.

*Killian Plastow is a finance and wealth journalist writing for the New Daily. He tweets @KillianPlastow.

This article first appeared on the New Daily website.

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