Coronavirus Stimulus: Right Size, Wrong Shape

“Looking at the Government’s coronavirus stimulus announcement, one thing stands out: the size is right for the initial response but the shape is wrong. The most effective form of stimulus makes up less than a quarter of the total package,” said Matt Grudnoff, Senior Economist at the Australia Institute, responding to the Morrison government’s stimulus package details.

“The Prime Minister asserted $3 in every $4 dollars of stimulus would go to business — it should be other way round. Common-sense and recent history tells us that business don’t spend when their sales are falling.

“The best way to help Australian businesses right now is to get cash through the cash registers. Businesses with plenty of customers don’t lay-off staff.

“The most effective part of the package is the $750 to welfare recipients. We know people living on the brink spend any extra money they receive on essentials, and this will support demand in the economy.

“The instant asset write-off and accelerated depreciation initiatives are likely to be under-subscribed. Business will be reluctant to spend as their sales fall.

“The Government has already made several attempts to bring forward investment with instant asset write-off and accelerated depreciation incentives. The problem is that forward investment can only be brought forward once.

“These economic stimulus initiatives might be temporary, but the fall in Government revenue could well be larger.”

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