Fixed costs subsidy – a simple way governments can help business during Covid


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Many governments are helping/have helped businesses during the last year since Covid 19 appeared on the scene. There are probably as many ways to help those businesses affected as there are countries in the world, and some sectors need more help than others. I would imagine from both the perspective of a business needing help, and from a government perspective, keeping this simple is key

Focusing solely on helping business with costs, probably the easiest thing a government can do is help a business with fixed costs. These costs are incurred even if a business is closed. Some such costs are imposed by government (e.g. business rates) and these are being postponed in many countries. Other fixed costs such as rent, security or insurance may still be incurred by a business, and some governments are helping business by covering a portion of such costs. Another method I have read about is how some governments are giving loans to cover such costs – as ultimately a surviving business can pay taxes, and of course government borrowing is very cheap at the moment.

Any schemes which help business by covering fixed costs should be relatively easy to operate and understand for two reasons. First, any business should have cost data to hand from its annual accounts at least, or from its accounting systems at best. Second, fixed costs are understood by even the smallest business. Of course, fixed costs are different for different businesses and sectors, and ideally any subsidy or help should take this in account.

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About martinjquinn

I am an accounting academic, accountant and author based near Dublin, Ireland.

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