The media is becoming a broken record as the “you know what” continues to flood our radios, social media and dinner table conversations. However, since the WHO labelled the coronavirus a pandemic it seems the conversation is centring more around the solutions e.g. testing, stimulus packages and containment techniques.
COVID-19 is a health crisis, not a financial crisis. Yes, there are economic impacts, but the core problem is the disease. The coronavirus is causing people to “live like a hermit’ and stock up on long-life items until the virus is controlled.
In turn, an endless number of Australians are working from home, universities are cancelling classes and worldwide events are being shut down. Ultimately, the health crisis is threating the survival of our businesses, our unemployment, and GDP levels.
Today we are discussing the ins and outs of Morrison’s coronavirus stimulus package and why the news triggered a recovery on Friday?
Simple breakdown of the Stimulus Package ?
Morrison’s stimulus package aims to 1) restore consumer confidence, 2) trigger an increase in investments and 3) ensure everyday Australians keep their jobs.
Welfare cash splash = $4.8 billion (31st March)
- $750 one-off cash payment to recipients: Youth Allowance, New start, disability pensioners, veteran support, carers allowance, 2.4 million age pensioners, and family tax benefits
Health challenges = $2.4 billion
- 100 new fever clinics to take some pressure off overcrowded hospitals
- Medical staff can bulk bill online through (Facetime, Skype) to reduce the risk of the virus spreading. Allowing, Australians with severe pain to reach their GP without leaving home. Also, quarantined patients can contact a doctor for general sickness advice instead of entering a clinic and possibly infecting healthy Australians.
Cash flow for businesses = $6.7 Billion
- Around 700,000 small to medium businesses are receiving $2000 – $25,000 cash. In turn, SME’s can use the cash to hire more workers or pay the wages of existing employees.
- Instant tax write off threshold lifted from to 30,000 to 150,000. Meaning, businesses are encouraged to purchase equipment to keep their operations running. Because they can now claim a higher tax benefit.
Ensuring Apprentices have Job security = $1.3 Billion
- The government are keeping around 120,000 apprentices in jobs through support payments (50% subsidy) to businesses with less than 20 workers.
Tourism sector = $1 Billion
- Businesses are incentivised to place employees into training instead of firing them.
Why did the announcement trigger Friday’s recovery?
Morrison’s announcement restored confidence for a split second, as the market rebounded 10% on Friday afternoon. Allowing, day traders to snap up a nice capital gain.
However, the temporary recovery was not meaningful. Especially, as the ASX plunged 5% yesterday. Screaming to investors the lack of confidence behind the market as we enter the “bearish territory”.
Will Morrison’s stimulus protect the economy ?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
On face value the economic stimulus appears pragmatic. Especially, in regards to the health challenges, cash flow for SME’s, and the tourism sector.
However, what is to say that every day Australians don’t store the $750 under the bed in the case a family member becomes infected. Moreover, with supermarket stampedes, product shortages and increasing infection cases is spending really on the mind of Australians?
Personally, I believe there is a high chance Australians will re-inject the $750 back into economy. Especially, if we use how Australians reacted to Rudd’s stimulus package back in 2009 as a benchmark. It is always important to consider multiple viewpoints in economics.
The effectiveness of the stimulus is dependant on the news surrounding the coronavirus. If negative news circulates, then the confidence behind the stimulus will be squashed.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG.