Government announces second rescue package — but is it too little, too late?

Scott Morrison has today unveiled the government’s second economic rescue package to deal with the escalating crisis.

The packaging, totalling $66.1 billion over the remainder of this financial year and next, is designed to pump money to small and medium businesses and protect those who lose their jobs. It consists of the following measures:

• Newstart recipients will receive “a new, time-limited Coronavirus supplement to be paid at a rate of $550 per fortnight” for the next six months. Eligibility for Newstart, under its various new names, will also be expanded to make access easier.
• All welfare recipients except Newstart recipients will receive a further $750 payment on top of the previous $750 handout, in July.
• The Newstart measure is expected to cost $14.1 billion over the forward estimates period while the welfare recipient handouts will cost another $4 billion.
• Individuals in financial stress will be able to apply online to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21, tax free. Cost: $1.2 billion
• Businesses with turnover of below $50 million will be able to access funding based on the PAYG payments they withhold of up to $50,000 this financial year, and $50,000 next financial year (there will also be a floor payment of $20,000 for all businesses). The payments will be made in late April and July. Cost: $32 billion (including $7 billion from the first package).
• The government will also guarantee 50% of new loans to small and medium enterprises of up to $250,000, making it easier for small and struggling businesses to access funding made available by the Reserve Bank’s massive $90 billion injection of funding for business investment last Thursday. The government will guarantee up to $20 billion.
• Bankruptcy law thresholds will also be increased to make it temporarily more difficult for creditors to initiate action against firms.

Comment

Despite efforts by the government, and some journalists, to hype a “$189 billion injection” (including the RBA’s $90 billion intervention on Thursday), today’s package looks too small to make a major difference in the face of an economic catastrophe.

Coupled with the first stimulus package, the government is providing around $58 billion in direct stimulus or support for businesses and households, or around 2.5% of GDP. But the overall package is better understood in terms of its timing: around $28 billion of that is intended to reach recipients by June 30, so it’s more accurate to say the emergency stage of the package is around 5.6% of GDP — although businesses will have to wait over a month to access much of that money, and a month at this point might just be too long.

The remainder of government assistance — including last Thursday’s $15 billion injection of funding for small lenders — is in the form of additional business investment funding, or investment incentives such as depreciation allowances, that brings the total cost of all measure up to nearly $100 billion, but may not help small business facing closure.

And 5.6% of GDP would have been a great package mid-way through last week. Unfortunately for the government, events, and this virus, are moving so fast that even waiting 24 hours can dramatically change the scale of what we’re facing. If the government’s plan is to keep rolling out major packages every week, that’s a defensible plan to respond to this constant change.

But it will miss something that the Rudd-Swan government was able to deploy effectively — a “wow factor” that come from big numbers, numbers big enough to get the attention of worried Australians.

Given that, a package worth $100 billion should have been rolled out today.

On the positive side, Newstart recipients will get a long-awaited increase, although it’s not permanent (except, good luck to the government letting the expanded payment expire if unemployment is still high in six months).

They’ll likely spend most of that money, unlike the rest of us, who on average save 60% or more of stimulus payments, according to figures obtained by Labor’s Andrew Leigh. Expanding eligibility for Newstart is also a positive given that Australians are losing their jobs right now.

The superannuation changes will be controversial. Super funds — retail, industry, corporate — may have to liquidate assets to meet demands for cash if people decide to take advantage of the changed rules, and now is not the time for super funds to be dumping assets.

Still, it’s easy to criticise from the sidelines. Governing in this catastrophe is tough, and requires rapid decision making. Stimulus stage 3 will likely be coming soon enough, and it may be bigger again.