Hopefully the Morrison government’s $17 billion stimulus package is substantial enough that it might buttress investor confidence over the coming weeks, even as share markets plunge today at the official declaration of the COVID-19 pandemic, and borders begin to close around the world. Only last week, Treasurer Josh Frydenberg was cheerfully assuring us that the package would have “a ‘B’ in front of it”. That seems like an age ago. However, the key measures unveiled by the treasurer today appeared skewed towards businesses – the Australia Institute pointed out this afternoon that companies receive $3 of every $4 – and that’s disconcerting. The investment and wage growth that was promised from the company tax cuts never eventuated – instead, shareholders took increased dividends. Less than a quarter of today’s package goes to households. “The size is right for the initial response but the shape is wrong,” said the Australia Institute’s senior economist, Matt Grudnoff. Let’s hope he’s wrong.

The escalation of the coronavirus outbreak is increasingly alarming. The Grattan Institute’s John Daley today urged state and federal governments to act now to “completely” close borders, cancel mass events and shut down schools and universities, which could dramatically reduce the death rate from the coronavirus. The federal health minister, Greg Hunt, and his Victorian counterpart, Jenny Mikakos, fielded urgent questions this afternoon about the possible cancellation of the Melbourne Grand Prix – not necessary yet – amid fears it will turn into a “Petri dish”. In Sydney, chief medical officer Kerry Chant predicted that 20 per cent, or about 1.5 million people, in NSW would be infected by the coronavirus, and hospitals had been told to double the capacity of their intensive care units and ventilator beds. “We’re nowhere near the peak,” she said.

The $17.6 billion stimulus package announced by the PM and the treasurer today includes six measures:

• $700 million to increase the instant asset write-off threshold from $30,000 to $150,000 for businesses with turnover of less than $500 million (up from $50 million) until June 30, 2020. (Those are big businesses.)

• $3.2 billion for a 15 month investment incentive so businesses with a turnover of less than $500 million will be able to deduct an additional 50 per cent of the asset cost in the year of purchase.

• $6.7 billion to boost cashflow by up to $25,000 for employers  – calculated at 50 per cent of their BAS or IAS – with a minimum payment of $2000 for eligible small- and medium-sized businesses. The payments will be tax free and benefit around 690,000 businesses employing around 7.8 million people.

• $1.3 billion to eligible employers of apprentices, who can apply for a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage for up to nine months from January 1, 2020

• $4.8 billion to provide a one-off $750 stimulus payment to pensioners, social security, veteran and other income support recipients and eligible concession card holders.

• $1 billion to support those sectors, regions and communities that have been disproportionately affected by the economic impacts of the coronavirus, including those heavily reliant on industries such as tourism, agriculture and education. (We better keep a close watch on this one.)

It is the $750 payments to income support recipients that will be most effective because they will spend it, according to the Australia Institute’s Grudnoff, who warns that the measures to stimulate business may not work. “Common sense and recent history tell us that businesses 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 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 Australian Financial Review reports [$] that Treasury estimates the package will be big enough that Australia should avoid a recession, forecasting a 1.5 percentage point boost to the economy in the June quarter. Opposition Leader Anthony Albanese welcomed the announcement this afternoon. “We will be as responsible and as constructive as possible and will work with the government to expedite legislation through the parliament where required.” Labor has a list of criticisms, but will not let them get in the way of the program. Today the government took a step in the right direction, but if it has struck the wrong balance – giving too much assistance to businesses and not enough to households – the stimulus will not be effective, and we will be having the same conversation again in the not-too-distant future. 

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