April 23, 2020

Wage subsidy support for pre-revenue startups

Country
Oceania
Policy/Program
Description of the core change(s) brought by this policy instrument

This program allows eligible employers to be reimbursed a fixed amount of AUD 1,500 per fortnight for each eligible employee.

Initially, the $130 billion COVID-19 wage subsidy package for businesses that have seen a 30% drop in revenue, year-on-year, did not mention what would become of pre-revenue startups.  The ecosystem mobilized to channel the voice of startups that are dependent on investor funding and trying to extend their runways for as long as possible in order to get through the COVID-19 crisis, and for which skilled staff are an important asset.

The Australian subsequently government moved to announce that there will be alternative eligibility tests that could allow pre-revenue startups to qualify for support offered by the government’s wage support scheme (known as the JobKeeper scheme).

The government's updated explanatory statement says that where a business’ turnover a year earlier is not representative of the average, or if it’s turnover is “typically variable”, then the tax commissioner will “have discretion to consider additional information”.

Please list the implementing agencies
Lifecycle of target firms for this policy instrument
Existing SMEs
Larger, established companies
Scale-ups
Startup firms
If you marked "start-up" and/or "scale-up" firms, please provide the specific definitions used

The scheme was originally made available for businesses that have seen a 30% drop in revenue, year-on-year.

The updated guidelines made alternative tests available, aside from measuring turnover. Eligibility for the scheme may be established if a business has “ceased or significantly curtails its operations”.

Support offered
Direct Financial Support
Level of intervention
Firm-level
Barrier(s) addressed with this policy tool
Access to Capital
Policy timeline

At the onset, the Rules specified that the JobKeeper payment is available in fortnightly periods between 30 March 2020 and 27 September 2020 – a period of 26 weeks.

April 23, 2020: JobKeeper 'alternative tests' for eligibility were released. Under these new rules, experts suggest most high-growth companies will have a chance to qualify if they've been impacted by COVID, but pre-revenue startups were unlikely to qualify. 

May 1, 2020: Treasurer Josh Frydenberg issued a legislative instrument giving effect to several changes to wage subsidy rules announced in April, while the Australian Taxation Office (ATO) has continued to publish guidance for firms enrolling.

July 2020, "JobKeeper 2.0" reduced the wage subsidies reduced but extended the program until March 2021

August 7, 2020: The government announced changes to the JobKeeper 2.0 eligibility criteria, meaning businesses will now only need to show that GST turnover has fallen in the September quarter, compared to the corresponding period in 2019. 

 

Challenges, criticisms and lessons

"The JobKeeper scheme was designed to help businesses of all kinds and sizes keep their employees on the books. But decoding what it means for startups has been something of a rollercoaster ride," reported SmartCompany. "The scheme was originally made available for businesses that have seen a 30% drop in revenue, year-on-year. But that wasn’t all too helpful for high-growth startups that may have grown significantly over the past 12 months, but which have seen a massive drop in trade since the COVID-19 pandemic set in....It also didn’t cater to any business less than 12 months old." 

Reporters therefore enthusiastically covered the news that the government subsequently clarified the criteria in an updated fact sheet, while noting it still remains to be seen how companies will be expected to prove they have seen a negative impact because of COVID-19, or how long it will take the authorities to go through each individual case. A week later, some stakeholders denounced the alternative test was a let down, notably pre-revenue startups, which now faced more uncertainty after the ATO’s instrument honed in on extraordinary revenue comparisons.

Other criticism include the fact the JobKeeper is a payment for the previous month, rather than a prospective payment which means businesses have to be search for ways to pay their staff before they can get the relief a week to ten days later.

Geographic scope
National-level