Tax breaks and cash to ease coronavirus panic, IMF urges

The IMF has urged the government to delay its return to surplus and deliver cash transfers or corporate tax breaks to soften the blow.

Treasurer Josh Frydenberg discussing December quarter GDP figures in Canberra this week. Picture: AAP

The IMF has urged the government to delay its return to surplus and deliver cash transfers to households or corporate tax breaks to soften the blow from the coronavirus emergency, amid warnings companies could move offshore without an urgent ­stimulus package.

The proposal in the Inter­national Monetary Fund’s annual country report came as ­ratings agency Standard & Poor’s warned the global coronavirus epidemic meant Australia would “enter or flirt with recession” and industry leaders complained that a lack of reform by Coalition governments was compounding the economic ­fallout.

Losses in financial markets deepened as the virus spread at home and abroad. The S&P/ASX 200 sharemarket index tumbled 180 points, or 2.8 per cent, to 6216, on Friday. This extended the week’s losses to 3.5 per cent and forged a 10-month low.

The major banks were among the hardest hit, with CBA down 3.7 per cent, Westpac sliding 4 per cent, ANZ down 4.7 per cent and NAB crashing 5.5 per cent.

Scott Morrison and Josh Frydenberg are finalising a targeted stimulus to respond to the crisis, which could include investment incentives, money for skills training, wage subsidies and the prospect of “tax holidays” for affected businesses.

Australian Food and Grocery Council acting chief executive Geoffrey Annison said bushfires, drought and now the coronavirus had put “immense pressure” on margins in the $131bn sector. Some businesses were “even ­considering moving operations offshore”. “Stimulus would help keep Australia’s largest manufacturing sector pumping and keep jobs in Australia,” Dr Annison said, calling for a three-year ­instant asset write-off and investment allowance.”

Australian Bureau of Statistics data on Friday showed the retail sector struggling, as annual sales growth slowed to its weakest in more than two years. Turnover fell 0.3 per cent in January, after a 0.5 per cent drop in December.

Australian Retailers Association executive director Russell Zimmerman seized on the numbers to accuse the government of pursuing an “anti-business” ­agenda.

He said the Coalition had refused to simplify industrial awards at a time when businesses were being labelled “wage thieves”.

He said the January retail ­figures were “worse than we thought” and that rising unemployment, falling interest rates and low GDP growth meant the government should fast-track its targeted stimulus measures.

“Whether that’s pulling legislated tax cuts forward or some kind of monetary incentive to consumers directly, or something else, I don’t know, but obviously there’s a real economic problem the government is going to have to confront if it doesn’t want to preside over a possible first ­recession in 30 years,” he said.

The IMF report said federal and state governments had ­“substantial ­fiscal space and should be prepared to provide additional stimulus in case downside risks materialise”.

“In this case, they should be prepared to enact temporary measures, including by further buttressing their infrastructure pipelines to step up such investment further,” the IMF said.

The Morrison government could also consider measures such as tax breaks for small and ­medium-sized businesses, bonuses for retraining and education, or cash transfers to households.

“In case stimulus is necessary, the ­implementation of the budget ­repair should be delayed, as permitted under the commonwealth’s ­medium-term fiscal strategy,” the report said.

The tourism and education sectors have been hit hard by the government’s travel ban, which enters its sixth week after being extended to cover South Korea as well as China and Iran. Extra restrictions have been placed on those arriving from Italy.

Speculation is mounting the government will announce its stimulus package next week, ­although the Prime Minister would only say on Friday it would come before the May budget.

Mr Zimmerman said he was “upset” by the latest sales numbers, and accused Industrial Relations Minister Christian Porter of making a bad situation worse with his crackdown on retailers’ underpayment of staff.

“When the minister would rather run with a union-led crusade on ‘wage theft’ while refusing to speak to business, instead of simplifying and making more flexible the framework in which it operates, it speaks volumes,” Mr Zimmerman said.

In a new report, S&P Global Ratings slashed its forecast for Australian GDP growth this year to 1.2 per cent, from 2.2 per cent, citing the economic fallout from the coronavirus.

The authors said Australia, Japan, and Korea in 2020 would “flirt with recession” as growth fell “well below trend”. The last time Australia grew more slowly than 1.2 per cent on year-on-year terms was in 2000.

S&P Global Ratings Asia-­Pacific chief economist Shaun Roache said, given its forecast for 2020 as a whole included a powerful rebound in the second half, Australia’s economy would “almost certainly” suffer contractions in the March and June quarters.

The widening spread of the COVID-19 virus would “prolong the economic fallout” in our ­region, S&P economists warned.

“Our U-shaped recovery has been pushed back to later in 2020 due to a harder hit to China’s economy in the first quarter, viral transmission outside China, and tighter financial conditions,” they said.

S&P sees another RBA rate cut, to 0.25 per cent, as being on the cards, but noted that the RBA was low on ammunition to support the economy.

Treasury and the Reserve Bank estimate that the combined impact of the virus and bushfires on GDP growth would be at least 0.7 percentage points.