As the Morrison government puts together a stimulus package to protect the economy from the coronavirus, it has repeatedly ruled out a “cash splash”.
Former Treasury boss Ken Henry’s advice to the Kevin Rudd-led Labor government heading into the 2008-2009 global financial crisis was “go early, go hard, go households”.
It resulted in $900 cheques being send to Australians across the nation.
“What happened in the GFC with the virtual closing of financial markets … aggregate demand stopped almost on a dime,” the present Treasury secretary Steven Kennedy told the Senate economics committee on Thursday.
This resulted in demand for retail goods falling dramatically and it was felt the retail sector – a significant employer of people – needed a boost from consumption.
Now facing a developing COVID-19 crisis, the emphasis is on propping up business more generally to ensure people remain employed.
“Certainly there are small- and medium-sized businesses that have been affected, a number of them have the double-up effect … of the bushfires and now the coronavirus,” Dr Kennedy told the committee in Canberra.
So far the tourism and education sectors are bearing the brunt of Australia’s initial response to coronavirus with Chinese visitors and students being banned from entering the country.
A multi-billion dollar stimulus package is expected to be released next week.
It is tipped to include tax incentives to help businesses with cash flow, alongside tax deductions for new investments.
Funding will be also aimed at infrastructure spending, which normally translates to major road and rail projects.
When comparing coronavirus to the SARS outbreak in 2003, Dr Kennedy said it was likely to be “deeper, wider and longer”.
In contrast, he described the impact of SARS having been a “v-shape” – “a sharp, relatively contained reduction in activity, mostly in Asia, followed by a quick bounce back”.