The Australian Industry Index fell by 19.9 points to -23.6, with businesses reporting uncertainty, rising input costs and supply chain and demand disruptions as the main issues they were grappling with.
To help manage the blow, the Australian Taxation Office will temporarily provide businesses struggling with cashflow more flexibility to pay tax obligations.
It will include generous payment plans, remission of interest and penalties, and the ability to vary pay as you go instalments, where taxable income has fallen, Treasurer Jim Chalmers said.
Some tax compliance and debt collection measures will also be paused.
"What we're announcing today will make our systems more flexible, our supply chains more responsive, and also businesses more supportive as well," Dr Chalmers told reporters in Canberra.
The government will also extend the small business responsible lending obligation to help businesses get faster access to credit.
"What this particular measure is all about, (is) ensuring that there is no additional regulatory burden or further delays when they need to access credit to keep their doors open," Small Business Minister Anne Aly said.
Business Council chief executive Bran Black said individual businesses had already taken action to support smaller firms through the crisis, including paying suppliers more frequently and ensuring fuel costs are reflected in payments to suppliers.
"This really is one of those points where we need a genuine Team Australia response. It's not empty rhetoric," Mr Black said.
He urged small businesses to reach out to larger firms they were dealing with to ask for support if they were struggling.
Australian Banking Association chief executive Simon Birmingham said lenders were also standing ready to help.
"Australia's banks recognise the ... unique responsibility they have to step up in times of crisis," the former Liberal frontbencher said.
