Australia unveils A$17.6 billion in stimulus to combat virus

Australia unveiled a A$17.6 billion ($11.4 billion) fiscal stimulus plan to buttress the economy from the coronavirus outbreak that threatens to tip the nation into its first recession since 1991.

The plan announced by Prime Minister Scott Morrison Thursday includes A$1.3 billion in support over two years to safeguard the jobs of 120,000 apprentices. The government will also spend A$6.7 billion over four years to support the cash flow of small and medium businesses so they can pay wages during the expected downturn.

In addition, the government will expand a tax write-off program with A $700 million in funding over four years to help businesses buy new equipment.

“This plan is about keeping Australians in jobs,” Morrison told reporters. “This plan is about ensuring the Australian economy bounces back stronger on the other side and the budget bounces back with it.”

Australia is joining governments around the world in opening up the fiscal spigots to fight economic fallout from the coronavirus outbreak. More than $84 billion in budget support has already been pledged or is under consideration, with governments adopting a mix of cash handouts, tax breaks and transfers. Bloomberg Australia @BloombergAU

Announced stimulus measures include:

Deliver tax-free payments of as much as A$25,000 for businesses with revenues under A$50 million to help pay wages and improve cash flow Pay A$7,000 in wage assistance to small businesses each quarter for each apprentice they employ to help retain trainees and re-hire those who lose their jobs Expand an 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) Make a one-off A$750 payment to welfare recipients

Morrison’s package comes after the Reserve Bank of Australia cut interest rates to a record low 0.5% and as money markets wager it will ease again in April, setting up a fiscal-monetary injection for the economy.

The coronavirus has slammed the Australian tourism and education sectors — expected to cut 0.5 percentage point from GDP in the first quarter — that rely heavily on Chinese cash. 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.

The number of confirmed coronavirus cases in Australia surged 40% to 112 in the 24 hours to Wednesday morning local time. Morrison announced the same day 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 117,000 people are infected and fatalities from the epidemic stand at more then 4,200.

The stimulus package suggests the government is all but certain to fail to return the budget to its promised surplus this year. S&P Global Ratings said the nation’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. An opinion poll released last month showed his Liberal-National coalition government’s 4 percentage point lead over the main opposition Labor party two months prior had been reversed.

The prime minister tempered expectations ahead of the fiscal package’s release, saying it would be measured and targeted and not in the league of the huge stimulus deployed by a Labor government in 2008-09 in the wake of the global financial crisis. He said the shock would be temporary and Australia was set to benefit on the other side.

Still, he may see the coronavirus stimulus plan as a vehicle to win back some trust from the electorate that was forfeited during the bushfires.

Source: Bloomberg