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Morrison government’s response is pitifully inadequate

Scott Morrison announces new measures to fight the spread of COVID-19. Picture: Richard Dobson
Scott Morrison announces new measures to fight the spread of COVID-19. Picture: Richard Dobson

Another rate cut and liquidity support for markets from the RBA is fine, but the government must now take drastic steps to prevent an economic catastrophe: specifically, it should provide cash compensation for lost income for businesses and casual workers affected by closures, cancellations and “self-isolation”.

Last week’s stimulus package was nowhere near enough. If relacing 100 per cent of lost revenue and wages can’t be contemplated, then make 70 or 80 per cent. Yes, it will mean a deficit of 10 per cent of GDP or more, and possibly the loss of the AAA credit rating, but that is irrelevant in the circumstances.

The time for being tentative and careful is over, and in a way that was shown by the few stocks that went up in yesterday’s sharemarket bloodbath, rather the many that crashed: Telstra and Domino’s Pizza. Telstra was bid because the new normal of working from home will mean more broadband usage; Domino’s price also went up, for more obvious reasons.

A few examples in the past 24 hours show the problem.

A website has been created for musicians and others in the entertainment industry to post how they are affected by the coronavirus, called I Lost My Gig Australia (ilostmygig.net.au). Here’s the tally up to Sunday night: number of events cancelled: 20,000; jobs affected: 190,000; lost income: $47m.

The other night Senator Peter Whish-Wilson tweeted: “My wife’s small biz is considering closing in line with isolation measures but their wage bill alone for the next two weeks is around $40K, so with no revenue coming in they are buggered.” Someone tweeted in reply: “Same... 12 employees. What do I do? We employ people on a promise. They build their lives around pay cheques. We have NO revenue now for 3 months as EVERYTHING has been cancelled or postponed. Horrible time... how do I support my employees?”

And then someone else chimed in: “Same boat here. Our business sales are down 90pc, we have sent out $1m of stock before the crisis and will be lucky to get 20c in the dollar back in current environment. It’s economic Armageddon.”

ARL commission chairman Peter V’landys spoke for many when he said: “Our money will only last so long and once its extinguished we are in big trouble.”

Musicians and small business people are at the front line of the fight against the virus, along with airlines, their employees and contractors, as well as the health workers who are exposing themselves to danger every day.

The coronavirus is a health crisis first, an economic one second and a financial markets one third, but each leads to the other, and things are moving very quickly. Events over the weekend have clarified the immense challenge that governments face in trying to balance health and economy.

It’s now clear to us all that the problem for authorities is to try to prevent the health system from being overwhelmed without causing an economic depression. That’s with D, as in 10 per cent GDP contraction, not an R for a two-quarters recession, which is already a given. Prime Minister Scott Morrison is trying to finesse it — announcing incoming travel “self-isolation” and banning events of 500 or more, while acknowledging that the domestic spread of the virus is likely to grow.

Why not try to head it off with more drastic measures now, since he knows there are only 2000 intensive care beds and respirators in the country and he knows that these would fill up if only 1 per cent of the population got the disease, so that those with other life-threatening conditions would miss out?

The implications of this were highlighted yesterday by a story in London’s Telegraph that a draft protocol had been prepared in Italy to the effect that coronavirus victims over 80 or in poor health would be denied access to intensive care and left to die. “This is how it is in a war,” the document reportedly said.

Yet Morrison and his advisers are trying to hold off shutting the country down entirely as China did, and Italy, France and Spain have now done, and the US is probably heading towards, having declared a state of emergency on Saturday morning.

The national cabinet will need to simultaneously announce drastic containment measures and unlimited support for businesses and those on variable incomes, like musicians and contractors.

There urgently needs to be a “bazooka” like the one announced by German Finance Minister Olaf Scholz on Friday: he said there would be “no upper limit on loans” that the government-owned development bank, KfW, can provide to businesses, and they would also be allowed to defer billions in tax. The Morrison government’s “up to $25,000” to be paid with quarterly PAYG tax in mid-May looks pitifully inadequate by comparison.

And the $750 cash payments to pensioners, instant asset write-off and accelerated depreciation are almost laughable.

It is already too late to prevent a significant economic contraction, definitely the first recession in 29 years, and possibly something much worse.

Two things have increased dramatically over those three decades: the number of people living on variable incomes, in small business, contracting or the “gig economy”, and the number of people who have gone deep into debt to buy investment properties.

It means the jobless rate is no longer an adequate measure of hardship or the dangers of a recession to the banking system.

It’s true that we come into this downturn with interest rates at a record low already, rather than a record high as in 1990, and another rate cut plus liquidity support from the Reserve Bank will help. Indeed, the RBA flagged that “further policy measures” are coming on Thursday. In fact, minuscule interest rates are another way in which this crisis is like no other that humans have faced before. But when you have no income at all, you can’t service mortgages at any interest rate, no matter how low.

Scott Morrison stands on the precipice of presiding over a depression. The conservative fiscal rule book needs to be thrown out.

* Alan Kohler is editor in chief of InvestSMART

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Original URL: https://www.theaustralian.com.au/business/economics/morrison-governments-response-is-pitifully-inadequate/news-story/012f5706dc3be402912094f485a55d2a