Hunger Games: more debt isn’t the answer with restaurants and cafes on the ropes

People receiving toilet paper, paper towels and pasta at Coles in Epping in Sydney on Friday. Supermarkets have imposed limits to control panic-buying. Picture: AAP

Australia’s restaurants and cafes have gone from boom to bust, from smashed avocado to smashed. If they are not helped immediately, their tragedy will be Australia’s.

It’s true that the flip side of the sudden stop to eating out and discretionary shopping is that butchers are selling out before lunch and supermarkets are having their best days in history, but their good fortune will not be enough to offset the disasters elsewhere.

On Thursday the Reserve Bank produced its “whatever it takes” moment, to borrow from former ECB president Mario Draghi’s 2012 statement about preserving the euro, except the Aussie version was more laconic.

At least the RBA statement said the money would be “at least” $90bn in 0.25 per cent funding for banks to lend to small and medium-sized businesses, rather than “up to”, as the government’s offer of $25,000 per business said a week ago,

That will be augmented by $15bn from the government to be spent buying securities from small banks and non-banks to support their lending.

The RBA is also going to print money to buy three-year bonds and keep the yield at 0.25 per cent, keeping interest rates on fixed-rate loans on residential ­mortgages and business loans down.

So it’s all about loans. The businesses in the most trouble are those with a lot of debt; apparently the way to rescue them is more debt.

Instead of printing money to give to banks to lend to businesses, why not print money and simply give it to businesses directly? Haven’t we moved beyond worrying about inflation yet?

And will the terms of these loans be regulated? Or will the banks simply pull out their standard one-sided loan contracts? To be fair, yesterday’s decision by the banks to defer loan repayments for six months and to cut interest rates suggests that they’ll be helpful.

As for the amount, it’s 4.8 per cent of GDP. On Tuesday Britain, France and Spain announced business loan guarantees (that is, government guarantees) and fiscal support totalling 14.7 per cent of their combined GDPs.

If Australia were to do something similar it would be $323bn – three times what Australia has coughed up. Will the Morrison government announce a $300bn stimulus and rescue? Seems unlikely.

Yet Australia’s businesses — small and large — are in as much trouble as those in Britain and Europe, even though we may not yet have the scale of coronavirus infection. Consumers and employers are behaving as if we have; everyone’s not just working from home, they’re eating at home as well.

By the time the crisis has passed, Australia’s restaurants, cafes, travel and tourist businesses and a whole lot of others hit by secondary effects will be closed, their owners and staff living on savings or trying to scratch a living from something else, or on the dole.

Those that survive in the hands of their bank will end up deeper in debt. Big employers will have gone broke as well, or hunkering down with very large-scale lay-offs, their staff either looking for welfare or driving Ubers for non-existent passengers.

Australia’s restaurants and cafes have gone from boom to bust; from smashed avocado to smashed. Picture AAP

Meanwhile supermarkets, green­grocers, butchers and pharmacists are enjoying some of the best trading in history. The good reason is that everyone is eating at home now, and has to buy food for 21 meals a week; the bad reason is that people are hoarding, including tour buses raiding country town supermarkets, presumably because at least they’re doing something against the zombie apocalypse.

The Prime Minister addressed this directly in his press conference on Wednesday morning, saying: “Stop doing it. It’s ridiculous. It’s un-Australian, and it must stop.”

It was the best moment of the press conference, when Scott Morrison was at his most prime ministerial, but when you think about it, it was actually another display of weakness and lack of leadership.

Does he really think giving everyone a ticking off is going to achieve anything? Why not simply announce rationing, as has now been introduced for medi­cines, rather than simply tick people off for being un-Australian?

In some ways it was a seminal moment of the Morrison government’s tentative and careful response to the coronavirus crisis.

The crisis risks turning into an economic tragedy now. Even if the pandemic turns out to be more benign than feared, which is a big “if” and it probably won’t, the economic damage is looking grave.

What shape will recovery take?

A lot of economists and investment managers are predicting a V-shaped recovery, and let’s hope they’re right. But it’s getting hard to avoid a sense that the Earth is shifting on its axis, and some things will never be the same.

Will travel and tourism, or eating out, go back to normal? Hard to know. But for one thing, there’s a fair chance that companies and their staff will decide that working from home is not a bad idea, so that a lot offices remain unoccupied.

And retail will take a long time to come back, if ever. A step-change from going shopping to getting deliveries of everything is now under way, and a lot of the shops that are about to close will never reopen.

Maybe most of that doesn’t matter — the coronavirus crisis has just made sudden what was going to happen gradually.

The main job of the government and Reserve Bank is to ensure that the fall in activity and output in the March and June quarters, which is obviously going to very big whatever happens, doesn’t extend into a longer contraction of more than 10 per cent, and therefore a depression.

Unemployment is no longer the only thing to watch: preserving small business and casual incomes is now the key to ensuring the economy doesn’t slide into something worse than the 1991 recession — even if that means a budget deficit of $323bn or 14.7 per cent of GDP. And loading them up with debt may not be a rescue.

Alan Kohler is editor in chief of eurekareport.com.au