There is much to be positive about with the strength of the Australian economy and its ability to stand its ground during the global financial crisis (GFC), particularly in comparison to other developed nations. A review of newspaper clippings from 12 months prior had predicted a bleak outlook for small business, government, employees and anyone else for that matter.
Whilst the GFC has not affected Australians to the extent predicted, it has nevertheless left a trail of carnage in its path (and we would expect there is more to play out), including a number of high profile corporate collapses such as Storm Financial, On Q Group and Bill Express, The Opes Prime Group and Timbercorp to name a few.
The GFC has also resulted in the rationalisation, consolidation and elimination of a large part of Australia’s banking sector, resulting in a concerning increase of market share for the ‘4 majors’. However with the GFC have we also seen the emergence of a new competitor in the banking sector – The Australian Taxation Office? A recent article by Agnes King from BRW Magazine (October 15 – 21 2009) went with the headline “Tax Office Goes Easy”, commenting that the ATO is honouring its promise to go easy on businesses unable to meet their tax obligations as a result of the GFC.
Interest free extended payment terms, deferral of BAS payments and remission of penalties and interest has certainly been welcomed by business impacted by the GFC. The ATO has in fact undertaken a campaign to proactively promote these concessions and increase the participation level. BRW quotes 85,000 interest free payment arrangements since June 1 with a combined value of $1.9b; a 16% increase in new payment arrangements in the first two months of 2009-10; and 1,500 activity statement payments deferred since June 1.
With the tightening of credit it would certainly seem a lot easier for business to borrow from the ATO rather than a bank, particularly with no application forms to complete, no valuations to obtain, no bank fees to pay and potentially interest free terms. The questions must be posed as to how many businesses will comply with these arrangements, and how much of this debt is ultimately collectible? Will the ATOs approach result in a more favourable outcome for the economy and keep the majority of those businesses alive. Or has the ATO achieved nothing more than delaying the inevitable for businesses destined for failure. Time will tell.
Common sense would suggest there will be a combination of outcomes. For every business saved the ATOs co-operative approach would have to be argued as a success. However, common sense would also suggest payment proposals have been accepted by the ATO in relation to businesses that are poorly run, non-compliant and ultimately unprofitable. In this case we conceivably have a situation where those businesses will be competing with complying tax payers, who are operating with a very different cost-base and at a distinct disadvantage.