Banks offer comfort ahead of the highly feared September welfare cut off.
September has been viewed as a potential “economic cliff” for Australia, with JobKeeper, JobSeeker and a range of other welfare payments to be shut down or significantly reduced. The loan deferral program was also meant to cease in September, however the banks have now decided to continue to offer it for another 4 months to those who are still in financial hardship.
Over 800,000 customers had applied for the initial loan deferral program, however significant proof will be required to attain the 4 month extension, with the reopening of areas of the economy allowing many to start repaying their mortgage.
This initiative is particularly in response to Victorians heading back into lockdown. It is no doubt a pragmatic response from the banks, with the current climate being no time to repossess hundreds of thousands of homes and collapse the housing market in a similar fashion to the GFC. Treasurer Josh Frydenburg welcomed the program, asserting that “the banks are going to be very supportive of their customers”.
While this has been an act of goodwill by the banks, time will test how far they are willing to go before the voices of the banks’ customers are outweighed by the voices of their shareholders.
A forked road lies ahead of government tax policy
Income tax cuts or a GST holiday? Both have been proposed this week as a necessary means to stimulate aggregate demand.
The income tax cuts idea is to bring forward the governments tax bracket reformation from July 2022 to 2021 or even before the end of this year. It would allow workers earning between $90,000 to $120,000 see their marginal tax rate go from 37% to 32.5%, while earners between $41,000 and $45,000 would have their marginal rate of 32.5% go down to 19%. This is approximated to take away $20 billion from government and into consumers pockets.
Westpac Ceo Bill Evans wants the tax cuts to happen in June, arguing “business will invest and employ if they anticipate rising demand… lifting household income growth through cutting personal tax rates is the key”.
Conversely, Isaac Gross, an economics lecturer at Monash University has proposed a 6 month GST holiday that would make non essential goods and services cheaper, thus leading to less saving and more spending.
Germany and Britain have already executed such a policy.
Considering that the GST is regressive and so low income earners are hit hardest by it, abolishing it for 6 months would be a targeted and timely approach. Especially given the fact that retail, entertainment, holiday and restaurant business who have been impacted the most by this recession have to factor GST into their prices.
Both income tax cuts and a GST holiday are valid ideas, Josh Frydenburg is at a forked road, the worst outcome would be to just stand at it.
Sharemarket drops in response to Victorian Outbreak
The ASX 200 closed 2.4% lower this week on the re-emergence of Victorian lockdowns as well as surging Covid cases in the US, with the confirmed amount of cases reaching 3.24 million, with 190,000 deaths and 963,000 recovered (as of Saturday 11th July).
References:
https://theconversation.com/australia-needs-a-six-month-gst-holiday-142037