Morrison’s economic stimulus package
Twenty-four hours before he unveiled the details of his economic stimulus package, Prime Minister Scott Morrison was rehearsing the sales pitch.
“From the outset, back in January, we moved to get ahead,” he said on Wednesday. “We’ve been working hard to stay ahead and it’s important that we keep our heads as well.”
He repeated that statement, or variations on it, in subsequent broadcast interviews spruiking the coming stimulus.
“We’ve been able to stay ahead,” he told Sky News on Wednesday night. “And we’re also going to keep our head.”
After being accused of flat-footedness in their response to the summer’s bushfires, Morrison and his treasurer, Josh Frydenberg, are keen to tell Australians they foresaw the potential impact of COVID-19 on both the health system and the economy.
“The genesis of this economic shock was outside of our control,” Frydenberg said as the pair unveiled the full package on Thursday. “But the response is not.”
That response is larger than initially expected, reflecting the size of the looming economic challenge as Treasury sees it.
The package is worth $17.6 billion, which the government says is equivalent in its gross impact over the next two financial years to 1.2 per cent of Australia’s gross domestic product.
Although substantially larger than the Rudd government’s first $10.4 billion package, unveiled in October 2008 as the global financial crisis struck, it is roughly equivalent, based on the size of the economy today.
It is also remarkably similar in composition, designed to get money circulating fast and keep people in work. During the GFC, the Coalition supported the first stage of Labor’s stimulus, but derided the $42 billion stage that came in 2009, involving the controversial programs to install pink batts and build school halls.
Of this week’s new stimulus package, $11 billion will be injected into the economy before the end of June.
It involves concessions, financial support and investment incentives for 3.5 million businesses and $4.8 billion in cash payments to 6.5 million income-support recipients.
Those existing welfare beneficiaries – including age, disability and veterans’ pensioners, and recipients of family tax benefits and Newstart – will receive one-off bonus payments of $750 from March 31. Almost all will be paid by mid-April.
The government has separately dropped the rate pensioners are deemed to earn in interest on their savings by half a percentage point, following the Reserve Bank’s recent cash rate cut, meaning they should keep more of their pension as a result.
The stimulus package’s business component involves raising the existing limit for instant tax writeoff of assets purchased from now until June 30 – from $30,000 to $150,000 – and expanding it to more businesses. It will also increase access to accelerated depreciation deductions and make tax-free payments of between $2000 and $25,000 to boost small and medium businesses’ cash flow. Sole traders won’t receive the cash payment.
Morrison said his focus was on businesses that employed people – so they kept their jobs.
Casual workers who don’t receive sick leave or holiday pay and are isolated due to the virus will have access to a Newstart-level sickness payment without a waiting period. The normal assets test will apply.
There will also be a 50 per cent apprentice and trainee wage subsidy for businesses with fewer than 20 employees, up to $21,000 an apprentice, aimed at keeping 117,000 apprentices from losing their jobs. Some businesses will also be able to defer their tax obligations by up to four months.
The cash component of the business measures account for $8 billion of the total package.
A new $1 billion regional support fund is also being created, to support high-tourism areas suffering a virus-related downturn and research alternative markets for struggling exporters.
Morrison is calling the package “proportionate, timely and scalable”, meaning more may come, depending on how well it works. He said the immediacy of the stimulus coincides with what the government hopes is the virus peaking over the next three months.
But its timing is also designed to try to head off a recession and the inevitable job losses that accompany and often outlast recession.
“To ensure that we keep Australians in jobs, that we keep businesses in business and that we ensure the Australian economy is in a position to bounce back strongly on the other side – that is the task,” Morrison said on Thursday. “That is what we’ve designed this package to do. If more is required, more will be done.”
Frydenberg said Treasury advised that the $11 billion immediate portion of the stimulus package should add 1.5 per cent to GDP, provided people actually spend it.
Getting the money out at the end of this month will ensure the government’s hoped-for consumer spending boosts the June quarter.
It is now bracing for a possible quarter of negative growth when the March quarter national accounts figures are published in the first week of June.
Heading off a second one would avoid the technical definition of a recession: two consecutive quarters of negative growth.
Assessing the package, independent economist Saul Eslake says the government has done “about as much as could be expected” to avoid a technical recession.
“You could argue that they could’ve been more generous to people forced to take sick leave than just putting them on Newstart,” Eslake says.
He also suggests that broadening the investment allowance could have been left until businesses were recovering, arguing that providing the concession now risks diverting funds that might have otherwise been used to keep people employed. He argues it will likely be spent on imported equipment.
Eslake notes there is little information about how the regional community coronavirus support fund will work. “Hopefully they won’t have a colour-coded spreadsheet to work out where it goes,” he says, referring to the way sports grants were approved.
But overall he describes it as “reasonably well targeted”.
“In terms of the size of the package, it’s hard to fault that,” he says.
The black-and-white results of the government’s efforts will be known in early September.
It has structured its package to avoid any permanent spending increases being “baked in” to the budget, preferring to talk up the prospect of a future surplus.
Talk of being “back in black” this year is over, as Finance Minister Mathias Cormann finally confirmed on Thursday.
“Obviously when you deliver a stimulus package of this size I think people can add up the numbers,” Cormann told ABC Radio National. “… Obviously we already were under significant pressure given the impact on revenue from the … coronavirus. So you know, this is obviously not going to be a surplus year in 2019-20.”
The budget was under pressure before the coronavirus hit and economists had already been calling for some kind of stimulus. Reserve Bank governor Philip Lowe had been advocating for government spending in the form of infrastructure investment.
The national accounts for the December quarter, published last week, showed the economy grew by just half a percentage point – including Christmas shopping and the Boxing Day sales, and not including the damage from January’s bushfires in the southern states.
But the coronavirus health crisis has made the need for stimulus undeniable, urgent and more direct.
In a joint statement, shadow Treasurer Jim Chalmers and Opposition Leader Anthony Albanese said Labor would not stand in the way of rolling out the package, which contained “some welcome measures”.
But they queried the level of support for casual workers in self-isolation, the exclusion of sole traders and whether the business cash payments were enough to stop job cuts. They were also concerned that the regional fund lacked detail “particularly given the government’s poor track record when it comes to integrity and implementation”.
“It remains to be seen whether these measures will be big enough or deployed quickly enough to prevent job losses, business failures or a more serious downturn,” the statement said.
Last year, the government gave taxpayers up to $1080 each in tax cuts, only for it to mostly be put towards mortgages rather than spent. It is now turning to those struggling the most financially to save Australia from recession, because they are more likely to spend the money they receive.
But if pensioners or Newstart recipients hope to be rewarded later by way of a permanent payment increase, Morrison’s message is clear: “This plan is about ensuring the Australian economy bounces back stronger on the other side of it, and … the budget bounces back with it.”
In other words, don’t hold your breath.
This article was first published in the print edition of The Saturday Paper on Mar 14, 2020 as "Crash splash".
A free press is one you pay for. In the short term, the economic fallout from coronavirus has taken about a third of our revenue. We will survive this crisis, but we need the support of readers. Now is the time to subscribe.