Retailers and small to medium businesses, apprentices and people on welfare benefits are the initial winners from the Morrison government’s coronavirus stimulus package.
Prime Minister Morrison yesterday revealed a $23 billion stimulus plan to help limit the economic fall out from the coronavirus pandemic, but it had no impact on the ASX which plunged 8% or 421 points yesterday, mostly due to the ham-fisted travel ban with Europe announced by Donald Trump just after midday.
More than half yesterday’s fall happened after Trump’s confusion speech to the American people wrongly included air freight in the ban. That had to be later clarified.
The Aussie dollar dipped half a cent to around 65.55 US cents in local trading yesterday afternoon – again it was more due to the confusion over the Trump package than the stimulus plans.
The yield on Australia’s 10-year bond rose 8 points to 0.76% yesterday despite the confusion caused by the Trump statement.
The fall carved more than 4100 billion from the market and takes the loss in value since the most recent peak on February 20 to more than $600 billion.
Investors ignored the government’s which in most part seems to have been well designed especially the $750 payments to eligible households and lower deeming rates for pensioners which should help retailers in the next few months.
Among the measures is an instant asset write-off, accelerated depreciation scheme and cashflow boost for employers, and wage assistance for apprentices and trainees. That was been warmly greeted by small and medium business groups.
Households who receive benefit payments will receive a stimulus payment of $750, including pensioners as will those receiving Newstart, the disability support pension, carers’ allowance, youth allowance, veterans support payments and family tax benefits.
“This plan is about keeping Australians in jobs,” the Prime Minister said yesterday.
“This plan is about keeping a business in business, particularly small and medium-sized businesses and this plan is about ensuring the Australian economy bounces back stronger on the other side of this and, with that, the Budget bounces back with it,” Mr. Morrison said.
A key part of the package for business will be a cash payment to businesses up to $50 million in turnover of up to $25,000, based on the amount of tax they withhold. That will cost nearly $7 billion.
Around 700,000 businesses are estimated to be able to access these payments, according to the government statement.
Existing asset write-off provisions will also be dramatically expanded until June 30, with businesses up to half a billion in turnover being allowed to instantly write off new assets of up to $150,000, a measure designed to inject $700 million into the economy in the June quarter.
There will also be a $3.2 billion depreciation deduction to encourage investment until mid-2021 for businesses with a turnover of less than $500 million.
The apprentice wage subsidy scheme will continue until September and will be backdated to January.
The $750 payment to welfare recipients will cost $4.8 billion. The current “waiting period” for people seeking to access the sickness allowance for casuals will also be waived.
At $17.6 billion, the package is less than 1% of annual GDP, but $11 billion is designed to be delivered by June 30, so it is more appropriately seen as around 2.3% of quarterly GDP.
And extra funding of around $5 billion will continue across the next two financial years, bringing the total size to nearly $23 billion.
The government will be cutting the deeming rate (what the government deems to be your income from financial assets, such as interest payments on bank deposits) for social security payments.
Minister for Families and Social Services Anne Ruston said that as a result around 900,000 people — 565,000 pensioners and 323,000 who receive other payments — will have their fortnightly payments increased.
An initial $1 billion will be put into a “coronavirus fund” aimed at promoting domestic tourism and waiving certain fees for tourism businesses. This will be regionally targeted and is aimed at tourism operators in National Parks and the Great Barrier Reef marine park.
The government made it clear the measures are temporary and will expire in June next year.
