KPMG Chief Economist Brendan Rynne responds to government economic stimulus package
This is a comprehensive and timely package. It is well-designed and most measures are aimed at boosting consumer spending. Importantly, the package appears capable of speedy implementation. Such a response to the COVID-19 outbreak was required in order to arrest any potential downward economic spiral driven by uncertainty and a loss of confidence by individuals and businesses.
The measures announced today operate on both the supply and demand sides of the economy, (though more on demand) which is appropriate given the nature of this shock to the economy. We recognise that for the $9.2bn in instant asset write-offs to occur, business has to invest nearly $30bn.
We welcome additional support for SMEs in the form the instant asset write-off scheme, cash payments to businesses and wage subsidies for apprentices. Investment incentives in particular are important to encourage businesses to bring forward, or at least not delay, investment decisions.
It is important that most of this activity will be deployed rapidly and with relatively straightforward conditions for qualification. While wanting to minimise opportunities for fraud and abuse, the government should avoid unwarranted delays to the stimulus if the demand-side effects of COVID-19 on consumption and investment are to be restrained.
For individuals, it is good that the government has moved to accelerate welfare claim processing and eliminate wait times. These measures are designed to shore up the confidence of individuals and households so that they do not stop spending due to uncertainty about the security of their income and to discourage workers from presenting to work when they are ill because they cannot afford to take time off to recover.
KPMG welcomes the provisions made for casual workers who contract COVID-19 or need to isolate themselves through the Newstart program. By having immediate access to Newstart casual workers who are impacted by COVID-19 will be able to take time off work without complete loss of income.
This will have positive health benefits as infected workers will feel less pressure to go to work to and risk the health of others because they cannot afford to lose their income. In addition, it provides some cushion so that spending by impacted casual worker does not collapse.
Experience has taught us that fiscal stimulus measures need to be targeted, timely and temporary, and these form three of the Federal Government’s seven principles which underpin the stimulus package. The others are that the measures should be proportionate, align with other arms of policy, make use of existing mechanisms and seek to lift productivity.
These principles are clearly evident in measures such as the one-off $750 additional payment for government benefit payment recipients, and wage subsidies of up to $25,000 for small to medium businesses between now and 30 June 2020.
Combined with the RBA rate cut earlier this month, this is a sensible co-ordinated approach to fiscal and monetary policy.