As the economic shock from coronavirus starts to hit home, the prime minister is putting a lot of faith in businesses to do the right thing, imploring them to keep workers in jobs and suppliers paid.
With the treasurer due to announce a stimulus package tomorrow, businesses have been doing what they do best: asking for tax relief. But is reducing the burdens on business enough to prevent a recession?
JP Morgan chief economist Sally Auld says the Morrison government knows that protecting the labour market will require not just tax relief for businesses but cash for people most likely to spend.
“If the unemployment rate goes up, then we’re staring down the barrel of a pretty nasty recession,” she told Crikey.
Things like increased payments for Newstart recipients — something the government has long been ideologically opposed to — makes a lot of economic sense, Auld says.
“You need to give money to the people with the highest propensity to spend it, and we all know that Newstart recipients are very budget constrained.”
“The fact that [Morrison] is even considering things like that show how quickly circumstances have evolved and how worried they are about household spending.”
This is not the GFC
During the global financial crisis, Australian businesses largely responded by reducing employee hours rather than sacking people. Grattan Institute chief executive John Daley says that the government will be hoping for a similar response this time around.
“One of the big things the government will be considering is how do we ensure businesses don’t go under because of a short-term cash flow problem,” he told Crikey.
“The issue here is trying to keep businesses afloat. The more mechanisms they have to deal with that the better.”
But Warren Hogan, a former chief economist with ANZ and industry professor at the UTS business school, says the economy has changed since the GFC, bringing new challenges for the government.
“One of the biggest changes is the casualisation of the workforce. That is going to make it easier for businesses under pressure to cut back on employee hours and potentially push people off an income for extended periods of time,” he told Crikey.
“The government can’t reasonably expect business to keep people on in hard times. This is the new reality of our economy.”
Small businesses more vulnerable
Both Warren and Daley agreed increasing payments for Newstart and pension recipients would be an important part of any stimulus package.
“There are plenty of good reasons to increase Newstart anyway. But if you’re after a stimulus, for every one dollar that the government puts out the door it’s more likely to be spent if it goes to Newstart recipients,” Daley said.
Hogan says keeping small businesses afloat, so that they can keep employees on, will be the biggest challenge for the government.
“We saw during the GFC, big businesses were very good at doing all sorts of things to keep people employed, such as reducing employee hours. But what worries me is small businesses — that’s where the real risk is here.”
Given the increasing levels of casualisation and contractors in the Australian Public Service, and the high turnover of temporary employees, it will be interesting to see if the Government puts its money where its mouth is.
Scomos government, no degrees in economics, no idea how to run an economy, not a clue when a surplus budget is required or a deficit is needed, no understanding that good economic managers borrow big in times of low interest to build infrastructure, no understanding that the more you suppress wages and incomes the slower the economy gets, no idea or thought of how blatant and visible corruption destroys public confidence, not the slightest understanding how bloating the rich wallets so they take billions out of circulation and store it in overseas tax havens just takes money out of circulation , no understanding that tax cuts for business and the wealthy deprives governments of revenue to support the domestic economy and government services, for a successful boost to our economy how about a lift of at least $100 a week to newstart, a lift in pension payments and a short term10% recession tax on the wealthy and big and multi business and an attack on tax avoidence by introducing jail time,
Well said bb. Especially if the infrastructure has a long term return, eg, (low cost) toll ways, social housing, tram/railways. Great jobs outcome, social benefits and ultimate return on investment (if kept in govt hands).
No economics degree is a plus.
Companies haven’t been investing their profits, so why would they invest money from a tax break?
(Isn’t investment a tax deductible in company tax anyway?)
The government has neither the knowledge nor the lines of communication to place the money where it is needed. Assuming money is the answer. The government needs to develop a cybernetic state where decisions are made on the basis of information rather than position and where there is a free flow of information. We could have started transitioning to a cybernetic system after the GFC and we did not. We could start now. It would not be accomplished in time to save us from this crisis but there will be others and we need government and the people to be able to take action.
Rofl.
Yeah lets make a Cybernetic State, robodebt for everyone!
Cybernetics is the application of scientific principles to organisation. Computers facilitate control and communication but it is the inappropriate use of computers that causes the problem. The computers themselves are not to blame.
Respectfully, why don’t we send in more cavalry to fight the tanks, God forbid that we should ever fight the current war when there is the last war to win.