How COVID-19 Relief Schemes Help Businesses

Business and Finance

Photograph: John Lau

The COVID-19 pandemic has been challenging for the entire world. People’s lives have been flipped upside down, jobs have been threatened, and, of course, the world’s health and safety have been questioned like never before in the 21st century. However, one sector that has been challenged like no other is the business sector. As one would imagine, due to various international COVID restrictions, spending has decreased drastically. According to The World Bank, sales have dropped 27% globally compared to pre-pandemic levels. This leads to a downward spiral as, when spending decreases, revenue for businesses decreases, directly causing unemployment.

In such unprecedented times, people are desperate and do not have many places to turn to except the government. As the private sector continues to struggle through 2021, with the US posting a 1.3% decrease in retail sales in May, the question of whether the government should intervene and how much they should intervene arises. In this article, the various fiscal measures that different countries’ governments have implemented to assist businesses will be examined and compared.

United States of America

Although the COVID pandemic has persisted from the end of Former President Donald Trump’s term to the beginning of current United States President Joe Biden’s term, the American government has opted for a more direct policy to assist businesses. In total, from the six pieces of legislation from the two presidents, the amount put towards COVID-19 relief is $5.3 trillion. Within these acts and legislations, $823 billion was placed towards the pay check protection program (PPP). This program provides direct assistance to businesses that are in tough financial situations due to the pandemic. As aforementioned, the drastic decrease in retail sales has caused businesses of all sizes to lay off workers to minimize costs. This PPP gives loans to small businesses to encourage them to keep their current payroll constant. The US government also provides incentives by forgiving the loans if 60% of the loan is put towards employees and salaries and employee numbers remain consistent. Studies show that over 72% of businesses that received loans have gotten full forgiveness. This has been an absolute game-changer for small businesses across the country, saving millions of businesses trying to stay afloat and providing much-needed work security to many.

Germany

Although throughout history, the German government has been reluctant to provide direct aid to the private sector, the pandemic proved to be too large of an obstacle for businesses to overcome plights on their own. This is why the German government implemented a €25 billion scheme of temporary aid. Unlike the American PPP, this scheme was a direct transfer payment to the businesses. Transfer payments are allowances provided by the government to these businesses without the transaction of any goods or services. In other words, this is direct financial assistance to these businesses. In Germany, the amount of money for each business is determined by the revenue loss compared to last year for each business. This system works extremely effectively as companies are able to maintain pre-COVID employment and operations with the cash. While this system does not have an emphasis on pay checks like the American PPP, it still works well to keep businesses afloat and gives them opportunities to put funding in other parts of the business.

Hong Kong

The Hong Kong government has taken early and aggressive measures to support businesses of all sizes in HK during the pandemic. The most notable is the Employment Support Scheme (ESS). This scheme was announced in April of 2020 as part of a 137.5 billion hong kong dollar anti-epidemic fund. Like the American PPP, the ESS was created to directly support businesses with employment and employee pay checks. Another similarity is that there are certain criteria that the businesses need to meet in order to not have to pay the government back. In the case of Hong Kong, when applying for the ESS, businesses must provide a head count of workers on their pay-roll. Businesses must then guarantee that 100% of the money received will be put towards wages and no one is to be laid off. These strict conditions are vastly different to the rather relaxed German approach. The government has also placed particular attention to small-to-medium enterprises and various schemes such as the Financing Guarantee Scheme. The schemes have helped ease pressure off loans and give businesses the opportunity to possibly expand their business overseas.

As seen from a small sample size of three different countries, government aid and support to local businesses during the pandemic has been going on across the globe. These examples answer the question of whether it is necessary for the government to intervene. These record-breaking schemes perfectly match the record-breaking crisis the world is going through. In the United States and Hong Kong, the government took a more employment-based approach. This does not only assist businesses by keeping them afloat, but also assist citizens to guarantee their salaries. Even though Germany took a more holistic approach, it was still effective and provided much needed aid. Nonetheless, no matter the efficacy or approach governments have taken, this crisis has provided a blueprint for future trying times and how governments could and should respond.