Finance Finance News Canberra is preparing a second coronavirus stimulus package

Canberra is preparing a second coronavirus stimulus package

Economists say the next stimulus package should cash handouts for households. Photo: TND
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The federal government is preparing another cash splash to safeguard the economy less than a week after unveiling its $17.6 billion stimulus package.

The measures are expected to target Australia’s aviation sector and other industries badly affected by the coronavirus, after the Centre for Aviation warned that many airlines “have probably already been driven into technical bankruptcy” as a result of growing restrictions on travel.

Following similar announcements from the Victorian and New South Wales governments, the Commonwealth is expected to reveal the second round of stimulus in time for Parliament to approve both packages when it meets next week.

The Australian Financial Review reported that the banks suggested to the government that it guarantee “80 per cent of the loans of struggling small and medium enterprises in return for the banks rolling over the loan until the crisis ends”.

Ministers discussed the package in a series of meetings on Tuesday.

In the mind of UTS industry professor Warren Hogan, it should take “a barbell approach” – targeted assistance to businesses under immediate stress at one end, and a broad-based cash handout to low and middle-income earners at the other.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg announced a $17.6 billion package last week. Photo: Getty

Professor Hogan said some airlines and other badly affected firms were “basically insolvent as they are unable to meet their costs with revenues”.

“So this package needs to be aimed at supporting those businesses right now – and there’s a variety of ways you can do that,” Professor Hogan told The New Daily.

This assistance could come in the form of funding support through the banking system, tax relief, or direct handouts – although Professor Hogan said the latter may not be the best approach given the circumstances.

The problem I have with direct cash payments to businesses is you could be throwing good money after bad,’’ Professor Hogan said.

“We don’t know the magnitude of what each company’s problems are and its current management might not know where this could go – so if you give money to a company that is going to go under anyway, it’s that idea of throwing good money after bad.”

Professor Hogan said governments should provide capital to strong companies directly affected by the crisis in return for equity, rather than simply bailing them out.

This could result in the government taking large stakes in companies such as Qantas if the situation requires it.

The airline has already slashed its international capacity by 90 per cent and warned of potential job losses.

Such a strategy would allow government to realise a financial gain for taxpayers down the track when the company has recovered and it can sell its stake for a profit.

Known as the Troubled Asset Relief Program (TARP), the US government used a similar scheme after the global financial crisis.

As for households, direct cash handouts could partially offset the negative impact on spending.

But Professor Hogan said the trick with that policy is working out the best time to introduce it.

As consumers start to avoid public spaces and governments slowly ramp up their social distancing measures, it remains to be seen whether households would spend any money they received, he said.

But Indeed APAC economist Callam Pickering said the problems caused by acting too slowly outweighed the risk of overspending.

“You’re much better off going too big than too small,” Mr Pickering told The New Daily.

“What the federal government has done so far is a sizeable stimulus package – it would be quite reasonable during a normal economic crisis – but I think they’re going to have to do it again and again.

“I definitely think we will see more of the payments to households … but it can’t purely just be a household thing. We need to help businesses stay liquid throughout this period.”

The government has not yet indicated whether it will include more cash handouts for households in its next stimulus package – the first included a one-off payment of $750 for pensioners and Newstart recipients – but both the Prime Minister and Treasurer have repeatedly said they will scale-up their response as the crisis unfolds.

“The grim reality is some businesses will close and some Australians will lose their jobs,” Finance Minister Matthias Cormann told Sky News on Tuesday.

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