Australia Unveils A$17.6 Billion in Stimulus to Combat Virus

12 Mar 2020 2:07 PM | Anonymous

Australia unveiled a A$17.6 billion ($11.4 billion) fiscal stimulus package geared toward the second quarter as it tries to buttress the economy from the coronavirus outbreak that threatens to end an almost 30-year recession-free run.

The program announced by Prime Minister Scott Morrison Thursday includes A$1.3 billion to safeguard the jobs of 120,000 apprentices and one-off cash payments to welfare recipients and lower-income households. The government will also spend A$6.7 billion to support the cash flow of small- and medium-sized firms to allow them to keep paying wages during the expected downturn.

Morrison also announced the government will expand a tax write-off program with an additional A$700 million over four years to help businesses invest in new equipment.

“This plan is about keeping Australians in jobs,” he told reporters in the courtyard outside his Parliament House office in Canberra. “This plan is about ensuring the Australian economy bounces back stronger on the other side and the budget bounces back with it.”

The announcement sets up a fiscal-monetary injection for the economy after the Reserve Bank cut interest rates last week and is expected to do so again next month. Morrison joins international counterparts in opening the fiscal spigots to fight the economic impact of the coronavirus that shut down China and has since spread to other nations.

More than $84 billion in worldwide budget support has already been pledged or is under consideration, with governments adopting a mix of cash handouts, tax breaks and transfers.

Announced stimulus measures include:

  • Tax-free payments of up to A$25,000 for firms with revenues under A$50 million to help pay wages and improve cash flow
  • Payments of A$7,000 in wage assistance to small businesses each quarter for each apprentice they employ
  • An expanded instant tax write-off program to help around 3.5 million businesses with revenue up to A$500 million (from A$50 million previously) buy assets worth up to A$150,000 (from A$30,000 previously)
  • A one-off A$750 payment to welfare recipients such as pensioners and job seekers and households receiving family benefits
  • A A$1 billion fund to help tourism operators and some China-exposed exporters

Treasurer Josh Frydenberg said modeling showed that A$11 billion of the package to be delivered by June 30 could add up to 1.5% to second-quarter growth. With the first quarter almost a write-off from the dual hit of wildfires and the coronavirus, the government is trying to avoid a second-straight quarterly contraction that would result in the first recession since 1991.

But Frydenberg acknowledged it was unclear how the virus would evolve.

Morrison estimated the package at 1.2% of gross domestic product. It follows the central bank’s March 3 cut that kicked off easing by counterparts including the Federal Reserve, Bank of Canada and Bank of England.

The coronavirus has slammed Australia’s tourism and education sectors, which are expected to cut 0.5 percentage point from GDP in the first quarter. Government revenue is set to slide as firms’ profits plummet and commodity prices decline.

The economic hit comes on top of a summer of devastating wildfires that were already expected to crimp growth.

Markets have been volatile in recent weeks as investors try to price the risk of the economic fallout. Australia’s benchmark stock index fell as much 5.8% at 1p.m. Sydney time Thursday, slumping deeper into a bear market.

Australia had 112 confirmed coronavirus cases as of Wednesday morning local time; actor Tom Hanks, who is in the nation to work on a movie, on Thursday revealed he and his wife had tested positive for the virus.

Morrison announced Wednesday that his government will open as many as 100 pop-up clinics to test for the virus as part of a $1.6 billion health package. Worldwide, more than 124,000 people are infected and fatalities stand at more then 4,600.

The stimulus package suggests the government is all but certain to fail to return the budget to its promised surplus. Morrison said the measures don’t extend beyond June 30 next year as he tries to avoid the “fiscal hangover” that dogged Australia’s response to the 2008-09 crisis.

The then-Labor government won international plaudits for its fiscal response that included cash payments to households and programs to improve infrastructure at schools and insulation of housing. But the rushed nature of the response resulted in elements being bungled, including checks being sent to dead people, and the budget was thrown into deficit for years.

S&P Global Ratings said Wednesday Australia’s AAA rating will remain intact despite the fiscal slippage, while joining Bloomberg Economics in forecasting the economy would nonetheless fall into a recession.

Morrison’s reputation was tarnished during summer wildfires that engulfed the nation’s east coast amid heavy criticism of his performance, and his Liberal-National coalition government now trails the main opposition Labor party in opinion polls.

The stimulus announced Thursday may help win back the electorate’s trust.

Source: Bloomberg

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