Coronavirus relief helps Tasmanians pay down debt, personal insolvencies lowest in 30 years
Fewer Tasmanians have become insolvent and more have been paying down debts during the pandemic period, as government support measures temporarily put more money into the pockets of some people.
But there are concerns that as those measures dry up over coming months, more Tasmanians will be under financial stress and more local businesses may wind up.
Relative to other states and territories, the Tasmanian Government has been more generous in supporting households and businesses, with support measures equalling about 3.5 per cent of forecast gross state product.
The national average is closer to 2 per cent.
State schemes have included rent relief, utility bill relief for businesses, school levy relief and taxi licence fee waivers.
The JobSeeker supplement, and the federal scheme enabling early access to superannuation, have also provided relief to many.
Jenny Sparks is the general manager of the debt collection agency Tasmanian Collection Service.
She said while many Tasmanians were still in tough financial positions, some who had received government stimulus payments or been able to access their superannuation early, could pay debts for the first time.
“We’ve had customers contact us and say, ‘this is the first opportunity I’ve had, I’ve got money, I want to clear my debt’, because they want that feeling of not owing anything,” Ms Sparks said.
“And so there’s been more of a willingness to pay, particularly where there’s been small debt, they’ve had the ability to clear that.”
Ms Sparks said there had been little debt collection during the pandemic period, with many councils placing rates debt recovery on hold.
“Many businesses have decided this is not the time to be pursuing outstanding debt, and similarly government departments have understood that consumers have been hit hard and it’s not appropriate for them to be pursuing debt during this time.”
Personal insolvencies drop to 30 year low
Tasmania experienced a significant reduction in personal insolvencies over the past financial year, and in the first part of this financial year.
The Australian Financial Security Authority (AFSA) publishes personal insolvency data including bankruptcies, debt agreements and personal insolvency agreements.
The deputy chief executive of AFSA, Gavin McCosker, said nationally, personal insolvencies were down 23 per cent last financial year, and in Tasmania they were down 26 per cent.
“Which was the lowest level since 1989-1990,” Mr McCosker said.
He said new personal insolvencies for the first quarter of the 2020-21 (July to September) were down 50.9 per cent nationally, and down 62 per cent in Tasmania.
When it came to corporate insolvencies, figures from ASIC show 26 Tasmanian companies entered external administration last financial year, about half of the 2018-19 number.
Travis Anderson, from Deloitte restructuring services, said the same cashflow boost measures that were helping people and businesses pay off debt were also helping them avoid insolvency.
He said business protection measures had also helped.
“So an example of that is a moratorium on insolvent trading, which is due to expire on December 31 and also some other protections that prevent or slow down creditors from pursuing their debtors into an insolvency process.”
The government has temporarily increased the debt threshold required for creditors to apply for a bankruptcy notice against a debtor, from a $5,000 limit to $20,000.
Debtors also now have six months to respond to a bankruptcy notice, rather than 21 days.
Fears of more insolvencies, rising debt as protection measures dry up
But there are concerns about the future of Tasmanian businesses and the impact on individual debt and insolvencies when government protection measures wind back.
The fortnightly coronavirus supplement for JobSeeker recipients dropped from $550 to $250 at the end of September, and it’s unclear what will happen to that payment after the end of the year.
The Federal Government has reduced JobKeeper from $1,500 to $1,200 per fortnight for full-time workers, with a further cut in January until the program ends in March.
Temporary bankruptcy and insolvent trading measures will cease at the end of the year.
The Federal Government is planning an overhaul of bankruptcy law, but hasn’t unveiled the full details yet.
In Tasmania, the State Government’s emergency measures to suspend rental evictions and freeze rent prices end in December.
Adrienne Picone from the Tasmanian Council of Social Service (TasCOSS) said many people who had been better off under the Government’s coronavirus support measures might soon find themselves facing debt and insolvency issues again.
“Rising financial hardship and increased personal debt will be one of the great sleeping giants of this pandemic, particularly as we move into the recovery period,” Ms Picone said.
“As we see those support measures withdrawn, that’s when people will really start to do it tough.
“We’ve heard people say that they’re absolutely terrified about what will happen once the support measures are withdrawn.”
Travis Anderson said it was clear that debt was building up in the Tasmanian economy.
“Plus there’s the businesses that ordinarily [might have become insolvent], the 50 per cent that haven’t gone into an insolvency process over the last six or so months,” he said.
“We’re certainly anticipating that sort of by mid-next year there will be an uptick in the level of insolvencies as a result of that.”
Jenny Sparks expects more debts to be pursued in the coming months.
“I think the lack of debt collection activity for the last six months has taken its toll on business,” she said.
“And whilst it was appropriate for the government to defer the pursual of outstanding debt, I think that they also recognise there’s an obligation to taxpayers to now collect that money.
“So we’re certainly getting ready for what we think will be a very busy time.”