Coronacrisis 2020: how countries are helping their businesses
Realnoe Vremya’s review of international experience of entrepreneurship support
The whole world has faced a global lockdown during the coronavirus pandemic because of the quarantine it caused and a fall in the economy. Authorities of countries are taking various sets of measures to support businesses, first of all, the most affected ones — small and medium-sized companies. Having analysed governments’ actions, Realnoe Vremya newspaper found out that they are divided into three categories — concessionary loans, tax concessions (from postponement to cancellation for several months), direct subsidies, not to mention subsidies for the population to keep consumer demand up. Moreover, the amount of support grows week after week. The answers of the experts we surveyed to the question about the most effective measure split. Some think that the countries are now acting rather emotionally, and the second round of support should be expected. Others indicate the necessity of help for manufacturing sectors. Another group considers that the focus should be made on Russians’ direct subsidies.
There will be new supporting measures too
After a number of initiatives voiced by President Vladimir Putin, the government of Russia introduced corresponding bills to the State Duma in less than a day, deputies quickly considered and adopted them after three readings.
Premier Mikhail Mishustin stressed the importance of tax concessions. A half-a-year postponement of all taxes (excluding VAT) for small and medium-sized businesses, postponement for insurance premiums for small enterprises, a six-month moratorium on bankruptcy and collection of fines are among them.
Nevertheless, many entrepreneurs consider not the postponement of taxes but their zeroing as the most effective support in these conditions. The Federal Tax Service published “answers to the questions about supporting measures for taxpayers adopted at the president and Russian government’s instruction” didn’t make it clearer.
It turned out that a bank guarantee and/or bail of a solvent individual, and and/or “immovable (or another liquid) property as security” will be required from an “organisation that was affected as a result of emergency circumstances” for a tax postponement. This is firstly.
Secondly, the first set of tax concessions applies only to those companies that work in tourism and aviation as well as physical culture and sport, art, culture and cinematography. Thirdly, to obtain the postponement, it is necessary to provide the Federal Tax Service with a corresponding set of documents (it isn’t specified how to do this during the quarantine).
Fourthly, without an address and the set of documents, there is only one concession: “a debt won’t be forcedly collected until 1 May”. And so on.
The Tatarstan president’s entrepreneurs’ rights defender Farid Abdulganiyev also explained to Realnoe Vremya in what cases entrepreneurs can be freed from paying. Or, more precisely, if they carried serious losses due to the quarantine:
“Some restrictions can be adopted by both federal bodies of authorities and regional bodies of authorities of the Russian Federation. If they directly influence the impossibility of meeting contractual commitments by an economic entity, in such cases we say that there is a foundation to conclude that there is force majeure. The document is provided by the Russian Chamber of Commerce and Industry or a region’s analogous department. In this case, the sides are freed from the responsibility for violating the commitments and, except as otherwise provided herein, a deposit, advanced payment and any other payments excluding real losses are returned by a general rule. It should be noted that every contract requires individual consideration. In Tatarstan, we received the first addresses from entrepreneurs who work in culture and sport and have been directly banned from holding mass performances. It is the foundation for the first precedents to get a force majeure statement in the current conditions. The biggest share of addresses is about rental agreements,” the business ombudsman told our newspaper.
Concessionary loans, tax holidays, direct help
Having studied the supporting measures for small and medium-sized enterprises in different countries, Realnoe Vremya newspaper found out they in fact are divided into three types. It is either help with loan, which is a creation of a credit guarantee fund, concessionary loans (including with zero interest rate) or help with tax from tax concessions, payment postponement for several months to total tax zeroing (holiday). Ultimately, some countries have preferred direct subsidies and non-refundable grants for severely affected sectors or limited to abstract “stimulation of business activity”, which can exclude all above-mentioned measures.
The countries are alike when it comes to the support for the service industry, public catering, self-employed people, aviation and tourism: also, it is hairdressers, taxi drivers, designers, the tertiary industry, in a word. If we exclude support for the population (from a direct payout of 1,200-3,000 to Americans to a higher unemployment benefit, which, in turn, is to keep consumer demand up and help enterprises), concessionary loans and tax holidays are more popular. Just a few countries are ready at the moment to help to pay a salary with the help of subsidies from the budget to companies that stopped their operation due to the quarantine (the Czech Republic, Netherlands, Great Britain — up to 80-90% of payroll).
Russia: 300bn from anti-crisis fund
To start with, Russian authorities announced an anti-crisis fund at 300 billion rubles. They promised tax postponements for tourism and aviation and concessionary loans for commercial enterprises to create a reserve of essentials. SMEs were promised to increase amounts of subsidies for concessionary loan programmes.
On 20 March, the Central Bank recommended banks to restructure loans to “borrowers with the coronavirus” and promised not to impose fines and duties and permitted banks not to create big reserves for them. However, the postponement for payments and insurance premiums applied only to the payments businesses were to pay until 1 May.
Late last week, the authorities asked the Federal Agency for State Property Management and other departments to provide SMEs with a postponement of rental for state and municipal property in 2020. Nevertheless, the head of the government gave three working days from a lessee’s corresponding address to sign an additional agreement. The payments are put off in parts into 2021.
The Central Bank promised to extend the refinance programme for SMEs’ loans and lowered the rate from 6 to 4%. It also promised to allocate another 1,5 trillion rubles to keep a rise in the amount of loans for small businesses.
Nowadays, there has been made up a list with other 600 core enterprises — the stress test has already begun for them “to determine which ones will need support if needed”. Now the authorities are drawing up the second set of measures, first of all, for hotels and public catering.
Earlier this week, Premier Mikhail Mishustin announced other supporting measures. The authorities are particularly promising interest-free loans, “first of all”, to pay salaries to employees”. They are to take out such loans this week already.
VEB.RF state corporation will provide guarantees for up to 100 billion rubles for loans to pay salaries. Small businesses will take out them from core banks and specialised SME Bank. Sberbank and VTB will receive sureties at up to 20 billion rubles each from VEB.RF for analogous loans in the next few days. “All payments in already obtained loans for particularly small companies operating in the affected sectors of the economy will be put off to six months. Moreover, the state will take on a third of these payments by granting subsidies,” Mishustin claimed.
European Union: €37bn to protect economy
The European Commission allowed that EU bonds or “coronabonds” could be issued to fight the economic impact of the epidemic. The EU Council agreed on the allocation of €37 billion to protect the economy as early as 18 March. €8 billion of which will be distributed between enterprises and companies that will suffer big losses.
The European Central Bank has also launched a programme to buy securities for €750 billion to support stability. The EU also has cancelled the cap of the budget deficit (no more than 3% of GDP) for the union’s countries enabling their authorities to take out unlimited loans to help businesses.
China: concessionary loans and exemption from VAT
China is the country that the whole world has looked at: the epidemic began there, it almost ended there. The effectiveness of Beijing’s measures can be evaluated in a couple of months already. They include low loan rates, exemption from VAT for logistic companies providing the Chinese with necessary goods during the quarantine, tax concessions for transport and travel companies, hotels and restaurants.
To support the companies experiencing difficulties with buying feedstock, components and paying salaries to employees, China set up special finance channels and provided “project loans and loans to replenish working capital”. Experts considered that the extension of loan repayment and postponement for interest payment as well as a reduction in the interest rate for current loans for small and micro organisations the most effective measures. If in February China’s authorities allocated over $10 billion, in March, the Celestial Kingdom’s People’s Bank additionally injected almost $80 billion in Chinese banks having cut their norm of compulsory reserves. By the end of the quarantine, Beijing had already managed to allocate $344,1 billion. So far, 85% of Chinese enterprises are back to work. On 30 March, the PRC’s Chairman Xi Jinping claimed that the government would be quickly correcting the policy to support small and medium-sized enterprises as the situation unfolded.
USA: over $3tr on loans
America is ready to provide the biggest financial state support that’s unattainable for other countries. At first, Washington promised a three-month tax deferment for SMEs having exempted Americans from income tax till the end of the year. Then Donald Trump gave a task to lend enterprises that directly suffered from the coronavirus by increasing lending programmes by another $50 billion.
The Federal Reserve System reduced the rate of federal funds to almost zero — 0-0,25%. Nowadays the FRS has offered over $3 trillion as loans. However, Reuters writes that this hasn’t yet helped big sectors of the real economy directly. Small and medium-sized enterprises allegedly were going to receive $0,5 trillion, $350 billion will be handed out to entrepreneurs as concessionary loans.
Japan: $4bn to stimulate business activity of SMEs
Japanese authorities assumed that a general set of measures to support the economy would reach 6 trillion yen ($15,2 billion) and promised to allocate $4 billion to stimulate the business activity of small and medium-sized entrepreneurs that lost clients and decreased capacities. But in late March, the authorities offered a $75-billion set of measures of economic stimulation, which exceeds the supporting measures during the crisis in 2008. They are expected to help concessionary lending and stimulate SMEs so that it will continue the activity without laying employees off.
The opposition is offering to cut consumption tax twice, to 5%.
Australia: $80bn of subsidies for businesses
Australian authorities were also forced to increase the amount of help. At first, they planned to subsidise SMEs at $11,4 billion, but on 30 March the authorities announced $80-billion support only to save jobs. Previously, the authorities had already promised payments and loan guarantees for businesses, the current round of support is a payment of $925 for every worker for two weeks, which is to save 6 million jobs.
Ultimately, we can briefly mention some other countries. For instance, Switzerland will send $10,5 billion directly to companies to support production during the epidemic. Georgia will provide a tax holiday for SMEs in tourism, while public catering and hotels will be freed of income tax and wealth tax for four months. A set of South Korean measures is assessed at $10 billion — it also supports SMEs. Cyprus has reduced VAT and frozen a rise in social payments for two months. Iceland has postponed taxes too, while Croatia has frozen loan repayment.
Sergey Khestanov economist, docent of Department of Financial Markets and Financial Engineering at RANEPA
The case is that there haven’t been such epidemics in contemporary history, this is why in any case authorities’ actions are impromptu. Having applied the first round of supporting measures for businesses, authorities will likely take a pause, have a look at what they have led to and probably apply the second, third and further round of supporting measures. The reaction of authorities [around the world] is now determined mainly by an emotional factor, not sound analysis. To apply truly effective measures, governments have to accumulate enough economic statistics, while this will take from a month to a quarter.
Our state can print the National Well-Being Fund to a certain degree [what some business representatives are asking for]. But, again, there isn’t enough statistical data, most functionaries are finding it hard to make such decisions simply because they can’t easily explain the necessity of their actions. I think real decisions will be made some time later — from a month to quarter.
Nikita Krichevsky economist
Russia shouldn’t be borrowing anything today. It should think itself. Today Russia has two key macroeconomic problems. One is about an absence of support for manufacturers, not the service industry. Manufacturers are in an awful situation today because, for instance, the service industry has closed and it feels fine. While the manufacturing sector, small and medium-sized businesses, has closed, moreover, it has equipment, specialists, engineers, software, purchased components and ingredients for final production. The authorities aren’t thinking about it today.
The second problem is about support for consumer demand — if we don’t solve this problem, we will face what’s going on in Italy today. Of course, a state shouldn’t be considered as a bottomless pit. The state in Russia has never helped anybody [business representatives]. And it won’t help. I even consider this correct, otherwise, state support would discourage. The state must provide a tax holiday for at least six months, no less. It must provide businesses with loans with no interest to pay salaries or, more precisely, not the state must provide but big banks. The state must refuse that share [of taxes] it receives from the manufacturing sector because after the crisis ends, the manufacturing sector will be in ruins, while commerce and services will ask for bedsheets and beds to sell. People ask for beds, while there is nobody to make them.
It is like now, for instance. Russia has a variety of medical mask producers. Why can’t they be provided with tax concessions? Why can’t they be exempted from taxes in general and left with social payments only? Because manufacturers in small and medium-sized businesses don’t have lobbyists. Neither do we have lobbyists.
But the USA or Great Britain are taking these measures because it is the USA and Great Britain. They can afford it because their currencies aren’t easily converted, there are reserves. It is the highest quality seal, which means that you can issue a lot of dollars, and they will end up in American banks or go to China. But they won’t go to the consumer market and cause inflation. While if we reset rubles, it will turn out that there will be more rubles in the economy, while the number of goods won’t change because we have a closed financial system.