The government's $17.6 billion dollar stimulus package was announced yesterday, and industry response has been mixed.
That $17.6 billion package includes $4.8 billion put aside to provide a one-off $750 payment to welfare recipients and aged pensioners.
Deeming rates will also be slashed by 50 basis points, which is the nominal interest rate the government 'deems' aged pensioners' assets to be earning.
There was a raft of small business write-offs and handouts announced too, of which more information can be found here.
Various groups are saying more needs to be done on the consumer and welfare side of the package, while many in the small business realm are urging small business owners to take advantage of what's on offer.
Industry leaders' opinions are below.
- Economy and Finance
- Households, Pensioners and Welfare Recipients
- Small Businesses
- Stimulus packages compared: Morrison vs Rudd
- Why did the Government change its tune on a cash handout?
This table below displays some of the highest-rate one-year term deposits in the market.
*Rates correct as at 01 June 2020. Rates based on a $50,000 deposit.
Economy and Finance
NAB CEO Ross McEwan
We welcome the Government's economic response. In particular, these targeted measures will help small businesses and vulnerable Australians at a critical time.
Banks are well placed to support the Australian community through this unprecedented situation. We encourage small businesses doing it tough to contact their banker to discuss what we can do to help them through, including things like deferral extension or restructuring of loans.
NAB kept lending through the GFC and we will do the same now.
Westpac Senior Economist Andrew Hanlan and Chief Economist Bill Evans
The Government’s Fiscal Stimulus Package is a bold initiative to bolster the Australian economy’s defences against the damage likely to be wrought by COVID–19.
It is imaginative and works through boosting investment while providing real incentives to protect jobs.
Our analysis of the Package suggests that the initiatives are only likely to offset the contraction in the June quarter that we had estimated earlier in the week rather than lift growth into positive territory.
However, the current domestic and global environment has deteriorated more rapidly than we had expected. The downside risks to our central case forecast that we envisaged earlier in the week are now materialising.
For us, despite the Government’s bold efforts the June quarter is still likely to show negative growth and Australia will experience a technical recession.
CommSec Chief Economist Craig James
Overall the package won’t super-charge the economy. Neither does it guarantee that the economy won’t slip into recession. But it is a good first step.
The measures are indeed targeted and temporary. As to whether the measures are proportionate remains to be seen – it is an evolving situation.
The business measures require assets to be purchased for businesses to derive benefit. Whether businesses have got the income and confidence to spend remains to be seen.
The one-off payments to pensioners and government benefit recipients should attract widespread community support and bi-partisan support in the Parliament. But there is no requirement for the $750 to be spent quickly or even at all, unlike a voucher or store value card with an expiry date.
Still, food businesses, other retailers, utility companies and a range of other small businesses should derive benefit when the payments are spent.
[REPORT] Economic Stimulus Package: The Federal Government has compiled a $17.6 billion package of measures that aim to support businesses and the most vulnerable consumers in the wake of the COVID-19 coronavirus pandemic https://t.co/ppPEWXVa46 #ausbiz pic.twitter.com/EJ1EUTd43E— CommSec (@CommSec) March 12, 2020
Households, Pensioners and Welfare Recipients
The Government has not targeted today’s package in the way that was needed, with some of these $750 payments going to households who don’t qualify for a pension because they have millions in superannuation assets.
These households are less likely to spend than someone living on $40 a day. Others are seriously left behind, particularly larger families on very low incomes.
We’re calling on the Government to urgently increase Newstart by $95 per week ongoing by the Federal Budget to help lift people out of poverty and prevent those facing job losses from falling into the poverty trap, while rebuilding the economy.
The Australian Council of Social Services is a national advocate supporting people affected by poverty, disadvantage, and inequality.
While any cut in the deeming rate is welcome, the government is still deeming pensioners to be earning 2.5% on investments in excess of $51,800.
No bank is offering anywhere near 2.50% p.a. on their term deposits, in fact the Commonwealth Bank has a ‘special offer’ of 1.20% p.a on its term deposit, not even half of what the government deems is the return.
The deeming rate still acts as a disincentive for pensioners to put their savings into safe investment accounts in banks which come with a government backed guarantee. And the current state of the share market shows just how risky the investment environment outside of term deposits really is.
National Seniors Australia is the pre-eminent consumer lobby for older Australians, advocating for rights and better outcomes for all seniors.
About to go on @DavidBevanSA on @abcadelaide to talk about the extraordinary times affecting @NationalSeniors We need to drop or suspend deeming rates now @Anne_Ruston @JoshFrydenberg @LindaBurneyMP @AlboMP pic.twitter.com/xXSwCvLxjH— Ian Henschke (@IanHenschke) March 10, 2020
Chartered Accountants ANZ Australian Tax Leader Michael Croker
This stimulus package is the equivalent of an economic flu shot to help ward off the adverse financial impact of coronavirus.
We don't know how long supply chains or workforce availability may be impacted - nor when consumer confidence will return, but these initiatives will help.
This package will see eligible businesses get cash payments and tax relief. Deserving members of our community will get cash and are encouraged to spend it. Perhaps more will be needed in the future, time will tell.
We urged small business owners to act now and familiarise themselves with the key outputs from the economic stimulus package in order to keep afloat in these uncertain times.
Australian Retailers Association Executive Director Russell Zimmerman
We certainly welcome the government’s stimulatory measures.
Alongside direct payments to lower income households, we think this package delivers a cash injection where it’s needed most, and this will help retailers withstand any hit to their trade in the short term.
I urge consumers to make purchases such as buying new clothes, footwear, and other items as winter sets in, and to know that by making these purchases they are also helping protect the jobs and businesses of their fellow Australians
We’re glad to see government support for employment, and wage subsidies for trainees and apprentices in small business – backdated to 1 January – will ensure young people remain in jobs.
Prushka CEO Roger Mendelson
The stimulus payments will be effective, however a voucher system would be more reliable in injecting cash back into the Australian economy at a fast pace.
I have concerns the instant asset write-off increase won’t provide a meaningful impact for many businesses until it’s too late, given the direct financial benefit won’t hit until after tax time.
Businesses are more worried about keeping their doors open and other immediate issues, so this is unlikely to be effective as the benefits are remote and far away.
Prushka is is Australia's largest privately-owned debt collection company.
Stimulus packages compared: Morrison vs Rudd
They say it's not the size of your stimulus package that matters, but how you use it.
Prime Minister Scott Morrison and Treasurer Josh Frydenberg on 12 March announced a $17.6 billion stimulus package, with an estimated $4.8 billion of that going towards $750 one-time cash payments for eligible recipients (those on welfare, as well as aged pensioners).
In contrast, then-Prime Minister Kevin Rudd's stimulus package, launched in March 2009, cost more than $40 billion, with more than $12 billion of that going towards the $950-odd one-time cash payments.
That $950 applied to anyone earning under $80,000 per annum, which is a much bigger pool than Morrison's more targeted approach that is estimated to cover around 6.5 million Australians.
For reference, $950 in 2009 is equal to $1,171 today.
The Rudd Government's stimulus package also included infrastructure programs such as the pink batts insulation program, and the school halls program.
In contrast, the Morrison Government's package is light on infrastructure measures, instead focusing on cash handouts, small business tax cuts and changes to deeming rates.
Why did the Government change its tune on a cash handout?
In September 2019, Prime Minister Scott Morrison was coy about giving cash handouts, however, economic headwinds sparked by coronavirus have made the government change its tune.
“Last time, you know, we had a government that reacted in a knee-jerk way, we’re still paying the debt off now, and will be for the rest of this decade," he said at the time.
"What you’ll get from my government is a much more sound-headed, cool-headed, measured approach, which has laid out the plans like what were in here [tax cuts and infrastructure spending] today."
The two stimulus packages are frequently compared for obvious reasons, but Treasurer Josh Frydenberg says they are in response to two inherently different issues - Rudd's being in response to the Global Financial Crisis, and Morrison's in response to coronavirus.
“In our response, we have been very careful not to repeat the mistakes of previous stimulus programs and not undermine the structural integrity of the budget," Mr Frydenberg said.
“Today’s announcement will provide the support businesses need to stay in business and keep Australians in a job.
“By acting decisively this package will put Australia in the strongest possible position to deal with the economic challenges we face and to make sure our economy bounces back even stronger.”
The more reserved response from today's Government is contrasted with the Rudd Government's 'Go hard, go early, go households' approach, to quote then-Treasury Secretary Ken Henry.
Arguably, the 2009 stimulus worked - Australia's GDP grew at a time when many developed nations' economies shrunk by 1% or more.
Australia didn't lose a single bank or financial institution, though Commonwealth Bank acquired Bankwest, and Westpac acquired St George.
In contrast, three out of five of the US's biggest investment banks collapsed or were bought out to avoid bankruptcy - Lehman Brothers, Bear Stearns and Merrill Lynch.
Time will tell whether the Morrison Government's stimulus package works.
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