How the Government & RBA are supporting the Economy and Financial System in Response to the COVID-19
This past month, the Federal Government has turned to support jobs, incomes and businesses at an extraordinary level, and Parliament has passed a record number of bills in response to the COVID-19 impact. The RBA has dropped interest rates to a record low, and has also implemented quantitative easing in Australia for the first time.
By the end of March, the total Government support for the economy equates to a forward estimate of $320 billion, and represents 16.4% of annual GDP.
We have been closely monitoring the Government’s response to COVID-19, and are encouraged by the effort made to support households and businesses, and the economy. We have listed below for ease of reference – and provided links to the formal factsheets – the key initiatives that Government are pursuing to support our economy during this time.
Below are the three areas that Government are focusing on:
1. Supporting Individuals and Households
JobKeeper Payment – $130 billion to support both employees and employers in keeping staff employed
Additional income support for individuals – $14.1 billion incl new JobSeeker Payment recipients
Payments to support households – $8.8 billion assistance to lower income Australians
Temporary early release of superannuation – $1.15 billion for individuals and sole traders
Temporarily reducing superannuation minimum drawdown rates
Reducing social security deeming rates – $870 million in response to low interest rates
2. Support for Businesses
JobKeeper Payment ($130 billion)
Cash flow support for small and medium businesses – $31.9 billion through credits in the BAS system of up to $100,000
Increasing the Instant Asset Write-off – $700 million to increase the threshold to $150,000
Temporary relief for financial distressed businesses
Backing business investment – $3.2 billion to accelerate depreciation deductions
Supporting apprentices and trainees – $1.2 billion wage assistance
Support of $1 billion for Coronavirus-affected regions and communities
Support for Australian airlines and airports – $715m relief from a range of taxes and Gov’t charges
3. Supporting the Flow of Credit
SME Guarantee Scheme for up to $20 billion of new lending, providing:
Loans of up to $250,000 for terms up to three years; and
Temporary exemption from responsible lending obligations for lenders.
Reserve Bank of Australia – supporting the flow and reducing the cost of credit through:
Lowering the Cash Rate to 0.25%;
A term funding facility for authorised deposit-taking institutions (ADIs), for up to $90 billion fixed at 0.25% for three years;
Purchasing bonds in the secondary market to target a 0.25% yield on 3-year Australian Government Securities; and
An adjustment to the interest rate on Exchange Settlement Balances to 10 basis points.
Support for non-ADI and smaller ADI lenders in the securitisation market – up to $15 billion for investment by the Australian Office of Financial Management.
In summary, this economic stimulus package is designed to position the Australian economy to recover strongly once the health challenge has been overcome.
It is also important to note ‘The IMF and OECD have indicated that Australia is one of the advanced economies in the best positions to provide fiscal support without endangering debt sustainability.’
(Source: https://treasury.gov.au/coronavirus 31/03/2020).
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