Government foregoes surplus to keep Australians working
All hopes of being “back in the black” were destroyed this week, with the Australian Government announcing a $130 billion stimulus package last Monday that aims to keep unemployment under control and small businesses afloat.
The centerpiece of this package is a $1500 fortnightly wage subsidy for small businesses who have experienced a 30% fall in annual turnover. The subsidy is a flat payment on a per worker basis and it will go a long way in helping businesses quickly recover their labour and capital after the crisis. While the Government believes over 6 million Australians will be eligible for this “JobKeeper” scheme, its impact on employment levels will be significantly limited until these small businesses are able to return to the status quo.
On the flip side, the government has announced the doubling of the “JobSeeker” payment (previously known as NewStart) to $1,100 per fortnight, whilst also increasing the income test threshold so that if your partner earns up to $80,000 you are still eligible for the allowance. For those of us who lost our casual jobs as a result of this virus, you are eligible for this payment, so long as you were with your previous employer for a minimum period of 12 months.
During this crisis, the politicians have actually stopped playing politics but rather worked well together, passing the first $84 billion stimulus package within a week of its announcement. This appropriate level of bipartisanship will need to continue for the most recent stimulus to be officially implemented.
Free childcare is another policy that will be implemented. Whether this will incentivise parents to re-enter the workforce at the risk of sending their children to Covid-19 breeding grounds is another predicament altogether.
The government has also placed a ban on evictions with Scott Morrison stating “If tenants are unable to meet their commitments…there would be a moratorium on evictions for the next six months under those rental arrangements”. However, it is important that a fair balance is kept between landlords and tenants, for a lot of landlords also have mortgage payments due. The ACT has shown initiative, offering tax rebates to landlords who lower the rental rates for tenants.
Markets Response to Government’s Cash Splash
While the ASX has lost $500 billion in the first quarter of 2020, it started the new quarter on a positive note, rising by 4% this week, suggesting that investors welcomed the announced stimulus package. However, a more likely cause was President Trump signing off a 2.2 trillion dollar stimulus package, the largest ever in US History which restored investor sentiment across the globe.
The USA now has more Covid-19 cases than that of Italy and Spain combined. This accompanied with the fact that the ASX’s performance is largely dependent on the US Markets, suggests that significant trading volatility will continue in the short-term horizon.
Australia’s beloved airline demands a parachute from Government
On a side note, Virgin has requested a $1.4 billion dollar loan from the Government, leading Alan Joyce to proclaim Qantas would also have to receive a $4.2 billion loan to “level the playing field”. Regardless of whether these requests will be granted, it saw Virgin shares jump by 34% on Tuesday.