A new business investment allowance, a financial boost for pensioners and immediate support for small and medium-sized businesses will form part of the government’s economic stimulus package aimed at protecting the economy from the fallout of the coronavirus.
The package, expected within days, comes as economists warn that the country is at risk of falling into recession, despite the latest national accounts figures showing the economy grew by 0.5% in the December quarter.
Following the rate cut, the treasurer, Josh Frydenberg, said the government was finalising its response to the coronavirus outbreak, with the severity of the downturn expected to be outlined in a meeting with the International Monetary Fund and Treasury officials on Wednesday night.
The Treasury secretary, Steven Kennedy, will update parliament on the growth forecasts when he fronts Senate estimates on Thursday morning.
Revealing the quarterly national accounts, Frydenberg said the government was again looking at the deeming rate, which was last cut in July last year, costing the budget $600m.
“It is also difficult, I have to say, for people who are depositors, and that is something that the government is also considering,” Frydenberg said.
The deeming rate is the amount the government deems your income to be from your financial assets and calculates the amount of income received from a financial asset regardless of the actual return.
As business groups called on the government to act urgently to address the hit to business from the virus outbreak, Frydenberg said a new business investment allowance was likely.
“As for an investment allowance, this is obviously under very serious consideration (and) this is something that the business community has asked for and if you look abroad some other countries have put in place fiscal responses which include support for business and investment,” he said.
“We want … Australian businesses to get this support through this economic shock, but when we are over this economic shock we want the Australian economy to be stronger, we want to have greater productivity, and investment is a key part of that.”
A roundtable of business groups that met in Canberra on Wednesday issued a statement warning that financial assistance measures were needed ‘early and hard’ to prevent the closure of businesses.
“Small business ‘lives and dies’ on cashflow. The failure of cashflow is the single biggest cause of small business closure and consequent loss of employment,” the group said.
“Given the flow-on effects, assistance to small businesses impacted by Covid-19 must seek to underpin cashflow so that businesses continue to remain viable and retain staff in the face of any dramatic falls in revenue.”
The group is calling for direct cash grants, tax breaks, wage assistance and regional stimulus.
The Australian Tourism Industry Council is also pushing the government for immediate financial support for affected businesses, and extra funding for Tourism Australia to spend on promoting domestic tourism.
Following the release of the December quarter figures, the Oxford Economics chief economist, Sarah Hunter, said the 0.5% growth recorded for the three months to the end of December was better than expected – but it was likely that there would be no growth, or a shrinking economy, recorded for the first three months of the year.
She said the coronavirus outbreak increased the chance of a recession – two or more consecutive quarters in which the economy shrinks.
“Pre all of this, at the end of last year, I would have said the chance of a recession is very, very low,” she said.
“But now obviously everything is changing and we’re only just getting some data points through to get an idea of the size of the shock.”
She said the “best case” for the first three months of the year was zero growth in gross domestic product.
“I think though we could easily see a contraction in the economy, in economic activity, just based on the hit to services ... the tourism channel of course and the business channel.
“As we go through March we’re going to see more and more of the supply chain issues coming through.”
Spending on retail and eating out would also fall, she said.
“And also, not to forget, it does get lost at the moment, the bushfires. That was already a substantial shock that we had absorbed at the start of the year that’s layered on top of this.”
She said government stimulus would “definitely help” support the economy.
She said something that acts quickly will be best, while spending on big infrastructure projects would be less effective because they take time to plan and get under way.
“Some current spending like road maintenance or something like that would be much more immediate because you can enact that straight away.
“Tax cuts for households, for instance, would immediately give spending power to households.
She said tax incentives for small business could also help if they were brought in immediately, rather than waiting until the end of the financial year.
The release of growth figures at 11.30am sparked a brief rally, but the Australian market quickly resumed its downward trend.
The benchmark ASX200 index finished the day down more than 1.7%, wiping out gains made on Tuesday.
Widespread bans by companies on staff flights due to the virus outbreak punished Brisbane-based Corporate Travel Management, with shares in the company plunging more than 9% to make it the biggest loser of the day.
Flight booking website Webjet was the second-biggest loser, tumbling 8.76%.
Other big losers included share registry business Computershare, down 8.3%, winemaker Treasury Wine Estates, which fell 6.8%, and retailer Harvey Norman, which lost 5.7%.