SYDNEY, March 12 (Reuters) - Australia’s government said on Thursday it would pump A$17.6 billion into the economy to prevent the coronavirus outbreak pushing the country into its first recession in nearly 30 years.
The country’s first stimulus package since the 2008 global financial crisis, which helped Australia avert a recession then, illustrates the lengths the government will take to pare the economic impact of the outbreak. Despite only affecting about 120 people in Australia so far, economists are expecting the widening epidemic to cause a recession in the second quarter.
The package will subsidise the wages of 120,000 apprentices, offer one-off cash payments for welfare recipients and deliver payments of up to A$25,000 for small businesses, Prime Minister Scott Morrison said at a news conference in Canberra.
“This is a comprehensive, a well-thought-through, a well-targeted plan, which is designed to support the Australian economy and jobs and businesses through the difficult months ahead,” Morrison said.
Morrison said more than 6 million welfare recipients, notably pensioners and unemployed citizens will get a one-off cash payment of A$750 from March 31.
“Households will receive a stimulus payment of $750 across the full gambit of those who receive all sorts of benefit payments,” Prime Minister Scott Morrison said in a press conference on Thursday.
“The biggest beneficiaries of that will be pensioners. They comprise around half of those who will receive those payments, but they also will be extended to those in family tax benefits, which obviously goes to those in earning households.”
Almost 700,000 businesses, whether small or medium, will be eligible for grants up to $25,000. These will help pay wages or hire extra staff.
An extension of the instant asset write-off will allow businesses to spend on equipment.
“Importantly, $3 out of every $4 spent will go to backing business and keeping Australians in a job,” said Treasurer Josh Frydenberg.
The government is dedicating $1.3 billion to keep almost 120,000 apprentices in jobs, with up to $21,000 per apprentice in wage assistance. This is aimed to subsidise apprentice wages for up to nine months.
Speaking with the Prime Minister, Australia’s Treasurer Josh Frydenberg said the bulk of the package will be spent immediately, offering a boost of up to 1.5 percentage points to the economy in the second quarter.
“The package won’t super-charge the economy. Neither does it guarantee that the economy won’t slip into recession. But it is a good first step,” said Craig James, chief economist, Commonwealth Bank of Australia.
Ratings agency S&P said on Wednesday it expected Australia to fall into recession in the first half of 2020, but the government’s strong fiscal position allowed for stimulus without threatening its ‘AAA’ credit rating.
Even with the relatively small number of cases, local health officials are struggling to contain the virus, prompting Morrison on Wednesday to pledge A$2.4 billion to support the health system during the outbreak.
The emergency spending package, parts of which will need parliamentary approval, likely ends Morrison’s hopes of delivering Australia’s first budget surplus.
However, the package did not reduce market nerves, with the ASX 200 falling by 3% after it was announced and then falling by more than 5% after the United States announced a ban on European travel.
Australia had 112 virus infections as of Wednesday, up from 100 the previous day, with three deaths, health officials said. ($1 = 1.5454 Australian dollars)
Reporting by Renju Jose and Colin Packham