Over the past month, the Federal Government has announced an unprecedented fiscal injection of $194 billion (almost 10 per cent of GDP) to support business and households through the COVID-19 shutdown. If you are having trouble keeping up, here is a short summary of the measures to date.
The Government announced three major economic support packages in March, each successively larger, as the scale of the economic fallout from the public health measures became clearer:
- A package of $17.6 billion outlined on 12 March, including one-off cash payments to people on welfare, investment incentives for businesses, and support to keep apprentices in work.
- Another $46.1 billion announced on 22 March, providing cash flow support for small and medium businesses, and higher financial assistance to people on transfer payments.
- The $130 billion JobKeeper program announced on 30 March, providing wage support for workers and businesses to encourage employment and boost workforce attachment.
Breaking down these packages, about $39 billion will flow directly to business, and $25 billion to households. The lion’s share – the $130 billion JobKeeper payment – partly flows to households (because many part-time and casual workers and people who would otherwise have been out of work get an income boost) as well as supporting businesses’ cashflow by covering part of the wage bill.
$130 billion for the JobKeeper program
The JobKeeper program will pay $1,500 a fortnight to an expected 6 million Australians for 6 months from 30 March. Payments won’t flow until May but will include employees who have been stood-down or fired since 1 March if they remain with or re-attach to their employer.
Businesses and not-for-profits are eligible if they have suffered a revenue reduction of 30 per cent; or 50 per cent if the business has annual turnover greater than $1 billion. Charities are eligible if they have suffered a revenue reduction of 15 per cent, regardless of annual turnover.
A business will apply for JobKeeper by nominating qualifying staff. The Government will pay the business, and the business must pass on the full amount to the designated employee. Full-time and part-time staff will receive at least $1,500 a fortnight regardless of hours worked or previous salary. Eligible casuals will receive the same payment but need to have worked for their employee for at least 12 months.
With a $130 billion price tag, this program accounts for more than two-thirds of the total Government spend to date.
$39 billion for business
There are six additional spending measures for business.
The biggest, costing $31.9 billion, is the boost to cash flow for employers. Businesses with less than $50 million in turnover will receive 100 per cent of their salary and wages withheld up to $100,000. (A less generous boost, costing $6.7 billion, was announced in the Government’s first spending package – that amount is included in the $31.9 billion.)
Businesses with turnover less than $500 million will also be able to accelerate depreciation deductions. These firms can deduct an additional 50 per cent of asset cost in the year of purchase. This is expected to cost the Government $3.2 billion.
A further $1.3 billion will be spent on a 50 per cent wage subsidy for apprentices (or trainees) for 9 months from 1 January 2020.
$1 billion has been committed for communities and industries hardest hit by coronavirus. The Government has not detailed how this will be allocated, but promises to get the money out the door as soon as practical. It has nominated tourism, agriculture, and education as especially hard-hit sectors.
$715 million has been dedicated to Australian airlines. This includes reimbursement of aviation fuel tax, and relief from Airservice Australia and aviation security charges.
$700 million will be used to raise the instant asset write-off threshold from $30,000 to $150,000.
$25 billion for households
Households stand to directly benefit from four further measures.
The largest is the coronavirus supplement – an extra $550 a fortnight to anyone receiving one of a number of income payments: JobSeeker Payment, Youth Allowance, Sickness Allowance, ABSTUDY (Living Allowance), Austudy, Parenting Payment, Partner Allowance, Widow Allowance, Farm Household Allowance, Special Benefit. This will cost an estimated $14.1 billion.
Two rounds of $750 stimulus payments will be made directly to individuals. Both rounds will go to eligible transfer payment recipients or concession card holders, with the list of eligible recipients narrowing from the first to the second payment. The first payment will be made from 31 March 2020 to 6.6 million people ($4.9 billion) and the second from 13 July 2020 to 5 million people ($3.9 billion). The total spend is $8.8 billion.
People suffering financial stress will be permitted to early access to their superannuation up to $20,000, tax-free and without affecting their eligibility for benefits. This is comprised of $10,000 in 2019-20 and $10,000 in 2020-21. Because the withdrawal is tax-free, the Government will forego $1.2 billion in revenue that it would have otherwise raised on the removal of superannuation across the period.
The final measure for households is reducing social security deeming rates by 0.75 per cent. Lowering the deeming rate means that more people will lose less of their transfer payment to income testing. This will cost the Government an estimated $876 million.
Our estimates do not include additional health spending measures ($2.4 billion and $1.1 billion) or the revised childcare scheme. The health announcements are new spending, but are not focused on the economy. The additional support for childcare centres comes via the JobKeeper payment.
The Government has said its most recent COVID-19 spending announcement brings the Government’s total economic support for the economy to $320 billion.
This figure includes instruments supporting credit. Key measures include:
- A $90 billion facility, announced by the RBA on 19 March, that will support the flow of credit by placing downward pressure on borrowing costs for banks.
- A $15 billion facility to be administered by the Australian Office of Financial Management and $20 billion in Government credit guarantees for small and medium-sized enterprises. These will have a similar function to the RBA’s facility, but will focus on smaller lenders.
These are vital measures for the health of Australia’s economy as we work through this crisis. But they are not fiscal responses. They are not direct spending that will flow to households, businesses, or community groups. Rather they are guarantees designed to support credit flow in the economy.