Coronavirus: Loosening restraints key to our economy bouncing back

What should governments do to minimise the economic damage being caused by COVID-19?

I use governments in the plural because the federal, state/territory and local governments should see themselves as partners, working together to ensure that businesses can remain afloat and that people’s jobs and incomes can be protected as much as possible.

At this stage, it’s sensible to concentrate on the key sectors that are being hit — tourism, hospitality, events, aviation, higher education and parts of agriculture. It’s tough going in parts of retail, too, although the supermarkets are enjoying the benefits of panic buying.

At this stage, the universities can fend for themselves, particularly as a disproportionate number of Chinese students are enrolled in the well-resourced, sandstone universities. But tourism and related parts of hospitality (think restaurants, hotels, etc.) are bleeding badly.

And here the overlap is very unfortunate — many casual workers and contractors are employed in tourism and hospitality. They risk being laid off altogether or having their hours of work significantly cut. In a worst-case scenario, they may even be prevented from going to work in the event of imposed quarantines.

One option for the federal government is to pay the Newstart Allowance, either in full or part, to these affected workers while waiving the job-search requirement. It’s not as though the bills and the daily cost of living cease for these workers just because their employers are being hit hard.

Assistance should also be directed to the firms themselves, some of which may hit the wall through a lack of cash flow. While banks are likely to be sympathetic to their borrowers by ignoring debt covenants, for instance, many firms will simply need to be bailed out if they are to continue. Hopefully, when the effects of the virus subside, these firms can bounce back and start taking on staff.

One of the technical considerations for the federal government is to identify those firms needing assistance. Through the payroll tax data base and other sources, the state/territory governments are better placed to know which firms should be targeted and what sort of assistance is most suitable.

State/territory governments could also chip in, with payroll tax cuts or pauses, for example. Local governments may forgive the payment of rates by firms for a time.

The federal government should consider bringing forward its investment allowance scheme, which has been foreshadowed to be announced in the budget. While the scheme might initially be taken up by larger firms, small firms can also benefit when projects begin to be rolled out.

While a key consideration for all governments is to prevent extensive job losses leading to an increase in the rate of unemployment, it is also important that credit markets continue to function. Ructions in the stockmarket are not helping and the drastic fall in the price of oil does not bode well.

Having essentially used up all its ammunition of cutting interest rates, the Reserve Bank will need to ensure there is sufficient liquidity in the markets. While this economic calamity was not started by a financial meltdown, there is a possibility it may have similar harmful financial effects.

Clearly, the federal government’s budget surplus aim will not be fulfilled. Having said this, the process of fiscal consolidation has been worthwhile because there is plenty of scope to use fiscal policy to deal with economic damage caused by the virus. Less restrained governments are not as well-placed.