COVID-19 is making an already existing Australian recession worse

Contributed from Victoria

It is becoming clearer by the day. The COVID-19 virus is scaring people and this is suiting political leaders, anxious to turn attention away from their political troubles. But this is a double-edged sword. Particularly in economies where the economy has already been teetering.

Australia is a good example of this. The economic indicators have for some time shown that the storm clouds are coming. Australia is not alone. Other countries and the global economy have been heading in the same direction. But we have our own problems here in Australia.

The arrival of a pandemic has caused a fall in confidence and threatens a considerable cost to the economy. The prospect of workplaces shutting down and people not going to the shop, will mean the loss of economic activity. With a healthy economy this is not so bad. It will pass.

When the economy is already sick, it will bite deeper and persist longer. This is a problem for the government. It is a bigger problem for the rest of us.

Pressure from circumstances and its own heartland, has forced the Scott Morrison administration to put forward a stimulus package. This is a government for for which opposition to stimulus packages and budget surpluses, have long been articles of faith. It has no other choice but to make this about turn.

But the implementation of its stimulus package could prove to be, another millstone around its neck. It is the wrong kind of stimulus.

The cornerstone is financial support for businesses. Although the details are still to be announced. It has already been flagged that $6.5 billion will be handed out to businesses. Small ones with anything from $2,000 to $25, 000. The big break will be for big businesses with a turnover of more than $50 million a year. They will be paid asset write off money for items worth up to $150,000.

It is suggested that the total for this aid will hit the $15 billion mark.

Critics will point out that the aid should be weighted more heavily to the lower end. The big players can survive. It is the smaller players who risk going out of business.

The Morrison government is also being pressured by the unions and welfare organisations to provide payments for casual workers without sick pay, if they are forced to stay home and not work. This may be necessary to sell the package to the public.

Aside form the obvious welfare implication, it is suggested that such payments will stimulate the economy. The truth is that impact will be seriously limited, as it is only a short-term measure. A far more effective response would be, to permanently increase all Centrelink payments, especially Newstart, and include those in insecure work.

The biggest problem with the package is that it offers far too little. This is not merely about a virus. Pretending that it is, only hides the fact that longer term solutions are needed.

Nor have we been told yet how its going to be paid for. Will it be through a new round of government cuts around the corner? Or will it be through taxation reform that puts a greater burden on the top end.? We have a good idea about which its going to be.

Besides the question of fairness, how the cost is paid is important in the sense of whether it stimulates or strangles the economy. There will also be politcal implications.

The main impact of a pandemic would be, through international trade and the effect on tourism and the education system. Australia has been far too dependent on mineral exports, tourism and foreign fee-paying students. It happens that most of this involves China, and while that country is in a temporary partial lock down, Australia is seriously affected.

The package should be about working towards an economy that can withstand shocks. There will be more of them. Pandemics will become more frequent as the world warms up. Unresolved forces dragging down the economy are still there. They will bring their own shocks.

There is the current oil shock that is causing more pain in the financial market and causing havoc with share prices.

We just went through the worst bushfires in memory. The full impact of this shock has not been felt yet. it will be more damaging than COVID-19. Australia’s agriculture has been seriously damaged. It has impacted regional economies and the rest of us are already starting to feel it through increased prices.

A plan for a more diversified and better performing economy is the only real protection. This should be the purpose of a stimulus package. It is not what we’re getting.

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