Perhaps a greater risk to our economy during the pandemic is not that governments are running out of money, but their inability to design programs to help struggling businesses, writes Tom McCarthy.
LAST YEAR, I wrote an article exploring the liquidity risk COVID-19 posed in global financial markets, as falling corporate income threatened to turn into a cash crunch that could overwhelm the system. banking.
Central banks and governments around the world have taken action, however. They have injected billions of dollars into the veins not only of the banking system but also of the economy in general, with interest rate cuts to historic lows and relief and stimulus measures like the JobKeeper package. here in Australia.
Although some specific sectors and companies have suffered from COVID-19 – some terribly – the general success of financial and economic measures deployed by governments and central banks is reflected in the performance of major stock markets. Although they were clubbed early in the history of COVID-19, they not only returned to their pre-pandemic levels, but in many cases, such as with the ASX 200 in Australia, they have continued to trade at all-time highs.
But can we be confident that governments will be able to keep us in calm waters, despite the persistence and, in some ways, the worsening of the pandemic? The Delta strain casts serious doubts on the idea that once high vaccination rates are achieved globally, COVID-19 will become a dramatic pandemic, but in the grand scheme rather short-lived. This variation appears to give Hurricane COVID-19 a much longer tail.
Some critical factors include, first, how much money governments are willing to spend. As you may even remember from the Coalition’s narrow focus on returning the budget to a surplus just 18 months ago, under the usual circumstances large budget deficits are seen as a bad thing. They affect a country’s credit rating and in a worst-case scenario, as we have seen with countries like Iceland, Ireland and Greece in the wake of the Global Financial Crisis (GFC), can even cause a kind of national bankruptcy.
However, unlike the GFC, COVID-19 has somehow put all countries in a similar financial quagmire and, with everything in finance being relative, all of a sudden, the historical significance of corporate balance sheets. country has lost a lot of meaning.
But while the will to spend could last as long as pandemic conditions last, now that central banks have pulled their main emergency leverage (lower interest rates) and big stimulus packages like JobKeeper have been pulled. – which, although effective, have also been shown to be effective. being too blunt, resulting in significant inequity – there is a bigger question.
How effectively can governments design and facilitate more tailored relief and stimulus packages that get money where it’s needed when it’s needed (which in some cases does happen? practically overnight)? And in doing so, keep your head above water and preserve general consumer confidence in order to avoid a downturn in the economy.
Maybe not so good, judging by major pandemic hiccups like poor JobKeeper / Seeker budgeting, Ruby Princess cruise ship management, hotel quarantine incidents, and the vaccination program, to name a few. only a few. The current Australian landscape also looks very different from 2020, when prolonged lockdowns were pretty much limited in Melbourne and the general opinion was a recovery of COVID-19 without the hiccups that Delta presents.
That said, at least here in Australia, it’s not that governments aren’t trying. You can see from their online grant finder that there are a number of grants related to COVID-19 and other relief available. However, when you dig into the details, the substance of these relief measures is questionable. It’s hard to imagine, for example, how a one-time payment of $ 10,000 is going to do much for a Victorian company with a payroll of up to $ 10 million, which has been on lockdown since the end of May and may demonstrate a reduction in turnover over several weeks of at least 70% compared to the same period in 2019.
Assuming that this stingy offer doesn’t reflect a shift in sentiment on the part of our governments to start tightening the purse strings, then it is rather evidence that the current aid and stimulus package is seriously inadequate.
As the Delta strain takes hold and the general manageability of COVID-19 in the community deteriorates – NSW likely opening up a trail that we will all likely walk – it’s clear that some companies and individuals are going to go much further in the process. Red. Governments must be proactive in increasing the sophistication of support measures so that they can target these entities.
Based on their handling of COVID-19 issues to date, I don’t think it’s unfair to suggest that for this crucial exercise at the national level, politicians and career bureaucrats should check their egos at the national level. door relying heavily on the best. financial and business strategy consultants. Not only paying them for tire information, but integrating them with government departments like Treasury and Finance (and state government equivalents) and instructing them to sail this ship across perhaps the seas. most turbulent COVID-19 events to date.
Tom McCarthy is a Melbourne based lawyer and business owner, and also writes to Mr Double Speaker. You can follow Tom on Twitter @mrdoublespeaker.
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