Christopher Niesche: Is Government aid enough to keep economies intact long term?

Scott Morrison, Australia's Prime Minister. Photo / Getty Images

COMMENT:

A couple of weeks ago the Australian government's strategy for dealing with the economic fallout of coronavirus was all about stimulus and keeping the economy ticking over and hopefully avoiding a recession.

But now, as the government has been forced to introduce more and more economy-stopping health measures to limit the spread of the virus, the strategy has moved to survival, of businesses and jobs.

The government and business have accepted that a recession is inevitable, and probably quite a deep one. The strategy now is ensuring as many people keep their jobs and as many small and medium businesses remain viable.

On Sunday the Morrison Government announced a A$66 billion ($67b) economic package, just nine days after rolling out A$17.6b ($17.8b) in economic stimulus. The latest wallop of money is different from stimulus – this time it's about keeping businesses going, with cash payments of up to A$100,000 ($101,000) for small and medium businesses.

Workers who have been laid off or stood down will be given fast access to a new welfare wage to tide them over.

The government wants to build a bridge over the inevitable dip, so that when the crisis is over, there are still businesses employing people who, in turn, will be able to pick up their spending again.

The measures won't help every business – a hairdresser with no customers still has to pay rent for instance, regardless of how long they put off their loan repayments – but to many businesses they will prove a lifeline.

The hope is that once the lockdowns and social distancing measures come to an end, we will all be able to pick up life much as it was before, and start spending in restaurants, shops, having those renovations done, and maybe making that long-planned trip to Uluru.

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Certainly that was the experience during the SARS crisis, where people just picked up where they left off once the medical danger passed.

The looming downturn is likely to be much deeper than the SARS-induced downturn because the containment measures are so much more stringent, but hopefully there won't be so much damage to the economy that we can't bounce back quickly.

Business also doing its part

Beating up the banks has been an Australian hobby for decades.

Foreclosing on farmers; gouging us with high fees and charges and closing branches – as the Australian saying goes "the banks are bastards".

All this before the shocking revelations of dishonest behaviour that came out of the Banking Royal Commission a couple of years ago.

Yet, as Australia confronts the economic fallout from COVID-19, we might have cause to reassess our view of banks.

Australia's 'big four' are leading the private sector response to the coronavirus.

Chief among them is the Commonwealth Bank of Australia, which was first of the mark with its response to COVID-19 late last week.

CBA has slashed small business lending rates by 100 basis points, cut fixed mortgage rates by 70 basis points and lifted interest rates for 12-month term deposits by 60 basis points.

Along with the other big banks CBA is also letting small businesses and mortgage holders to defer their loan repayments for six months.

The Australian Government announced a A$66 billion ($67b) economic package, just nine days after rolling out A$17.6b ($17.8b) in economic stimulus. Photo / Getty Images

CBA is putting the national interest ahead of shareholder interest in a way that would have been unthinkable two years ago. But the Banking Royal Commission has prompted a rethink of the role of the company and a recognition that shareholders are just one of several stakeholders including employees, the environment and the community and their needs don't always take primacy.

Under chief executive Matt Comyn, CBA will go a long way to restoring community trust in the bank and in big business generally.

And we must acknowledge that the banks have had help with their altruism.

Importantly, the banks are drawing on a A$90b ($91.5b) in funds provided by the Reserve Bank to provide them with cheap liquidity – money they can draw on to loan to customers – so long as they keep lending to businesses.

It's not just the banks doing their bit. Other large companies are stepping up.

Telstra – another company Australians love to have – has frozen the job cuts it has been pursing to remain competitive in the digital age and bringing forward its plans to invest A$500 million in building a 5G network to the current calendar year.

Having cut over 6000 jobs so far, Telstra on Friday said it will not announce any further job reductions over the next six months. It is also beefing up its local contact centre workforce, with plans to hire an extra 1000 contractors to temporarily field the calls flowing into its Australian centres – all as it warns it will miss its annual profit target.

Miner BHP is hiring 1500 workers on six-month contracts to bolster its existing workforce and support its mining operations.