The decision not to pump much cash, relatively speaking, into the wallets of ordinary Australians is the biggest gamble in the Morrison government’s stimulus package.
By directing three-quarters of the $17.6bn stimulus into corporate coffers, Scott Morrison and his treasurer, Josh Frydenberg, are betting that the main economic evil of the coronavirus outbreak will be interruptions to the cash flow of businesses.
The handout of up to $25,000 in cash should be enough to buy bosses a new car – a prospect made more attractive by the fact it can be instantly written off against company tax.
The instant write-off threshold was increased to $30,000 last year. The stimulus package lifts it even higher, to a whopping $150,000, and allows bigger businesses to use it.
Medium to big businesses will also be allowed to instantly write off half the cost of buying new equipment.
Morrison is hoping these measures will result in business bringing spending forward, pumping money into the economy while it is suffering the worst of the effects of the outbreak.
He also talked about business investing in productive assets.
This would be mean a restaurant bought a new kitchen, rather than snapping up a secondhand RAV4 as a “company car”.
Ultimately, moral judgments about what people spend money on don’t matter, so long as the economy benefits.
But what isn’t clear is if businesses have the desire or capacity to spend on anything, even with the lure of big tax breaks.
Whether business owners feel they need a new vehicle right now remains to be seen, given the anecdotal evidence that many already went out and bought one back when government introduced a $20,000 instant write-off threshold back in 2015.
And the Reserve Bank governor, Philip Lowe, who was something of an economic optimist until the bushfires and coronavirus wiped the smile from his dial, has consistently worried about the reluctance of companies to invest in their businesses.
The measures needed to contain the virus don’t seem likely to make spending more likely.
If, as seems likely, major events are cancelled, people are working from home and your restaurant is shut, why would you buy a new kitchen?
This is where putting money in the bank accounts of ordinary Australians could have helped.
Back in 2009, as Australia faced the global financial crisis, the then prime minister, Kevin Rudd, gave $900 in cash – more than $1,100 in today’s money – to more than 8 million people earning $80,000 a year or less. High income earners got smaller amounts.
Morrison’s handout is more miserly, at $750, and restricted to people on welfare benefits or receiving family tax benefits.
There’s also no increase in the Newstart rate, which economists say would have immediately pumped cash into the economy through increased spending.
The market’s verdict on the package was clear: thumbs down.
As soon as Morrison opened his mouth at 10.35am on Thursday morning, the benchmark ASX200 index, which was already down about 2%, began falling. Within half an hour it was down another percentage point.
And that was before Donald Trump announced he was closing the US to most of Europe.
By 12.30pm, the index was down more than 4%.
