19
Mar
2020

Image of concerned workers discussing issues

COVID-19: The economic rescue package must target households as well as businesses

by Danielle Wood and Brendan Coates


Published in the ABC News, March 19 2020

The Federal Government’s second COVID-19 economic rescue package will focus on supporting businesses and households that are likely to take a hit to their income in the coming months.

This is the right economic response. Doing it well will not come cheaply or without controversy. But as with the public health response, speed and scale must trump perfection.

Two policies should form the centrepiece of Stimulus Two: wage and rental relief for businesses and cash for affected workers.

For business, the biggest challenge will be keeping the lights on during a prolonged but ultimately temporary collapse in revenue.

“Social consumption” businesses will be on the economic frontline: airlines, accommodation and food services, tourism, retail services and arts and recreation will all take a significant hit to their cashflows. And many other businesses that provide supplies to these sectors will also be hit hard.

The $25,000 income tax write-off for businesses with turnover of less than $50 million is effectively a cash bonus for all small and medium businesses with staff.

The Government has also offered deferral of GST, income and other tax payments for four months on a case-by-case basis, in effect an interest-free loan. These will help, but more will be needed.

What should be on the stimulus hitlist?

The biggest costs for most businesses on the frontline are rents and wages. A well-designed assistance package would give businesses some breathing space on both.

State governments should enforce a rental holiday or discount for businesses during the worst-affected months, effectively asking landlords to share the pain.

Some landlords are already offering these types of rental discounts. They’ve realised keeping their existing tenants afloat is better than an empty shop.

The consequences of a short-term haircut for landlords aren’t insignificant, but they are a lot smaller than the economic hit from losing a swathe of restaurants, retailers, gyms and hairdressers.

Rental discounts are a matter for the states, but the policy will work best if it is coordinated nationally. The national ‘war cabinet’ arrangements give us an opportunity for federalism at its best.

Many firms will be struggling with wage bills in the coming months. The policy response should focus on supporting businesses that would otherwise retrench staff to put them on leave without pay, a better result for both business and workers. But this can only happen if workers have access to government income support.

Stimulus Two should provide this support. Ideally this would mean offering short-term assistance to any worker who is sick or does not have paid work or leave during the crisis. This will be a large group.

More than one third, about 37 per cent, of Australian workers do not have paid leave entitlements, including 2.4 million casual employees and 2.2 million people who are self-employed.

Many more will exhaust their leave entitlements. And the lowest paid will be hit hardest: half of Australians who earn less than $800 a week do not have paid leave entitlements. And many workers with leave entitlements but in the employ of severely affected industries could otherwise see their employers go bust before they’re able to claim them.

‘Claim now, ask questions later’

We could support these groups via the welfare system, offering broad-based “claim now, ask questions later” access to Newstart-level insurance payments for anyone not working.

But there are legitimate concerns about Centrelink’s capacity to get this rolled out quickly and to cope with the volume of demand in a period when their own workforce will be under pressure.

The US experience is telling: in Massachusetts, more people filed for unemployment benefits on Monday than in the entire month of February.

A less targeted (and therefore more expensive) but far easier and faster approach would be to give means-tested cash payments to all working households during the worst months of the crisis.

For example, the Government could give payments at the Newstart rate of $1,200 a month to all employees with incomes less than a threshold of, say, $100,000 last financial year, covering nearly 10 million workers.

This would cost about $12 billion a month, or 7 per cent of Australia’s monthly GDP. But it would be the best way to ensure that working households get timely support to manage the hit to their income.

These policies are bold, but they need to be.

The Government has shown it will take the necessary steps to manage an unprecedented health crisis. Let’s hope it is willing to do the same for the unfolding economic one.