Australian COVID-19 Stimulus Package And Government Response

The government and the Reserve Bank of Australia, like their counterparts in other major countries, have enacted several measures to protect and stimulate their economies in the wake of the coronavirus pandemic.

Reserve Bank And Banking System

On 3 March the Reserve Bank's board lowered its benchmark cash rate, which is the interest rate on unsecured overnight loans between banks, by 25 basis points to 0.50% and said it "is prepared to ease monetary policy further to support the Australian economy."^[1]

On 16 March the Reserve Bank said it "stands ready" to buy Australian government bonds in the secondary market "to support the smooth functioning" of the market. The Reserve Bank also said it will continue to conduct one-month and three-month repo operations on a daily basis in order to provide liquidity to Australian financial markets. It said it will conduct repo operations of six months or longer at least weekly.^[2]

On 19 March the central bank announced several new moves:

• It lowered the cash rate by another 25 basis points to 0.25%.
• It set a target rate on three-year Australian government bonds of around 0.25% through the purchase of bonds in the secondary market.
• It also created a $90 billion three-year term funding facility for authorised deposit-taking institutions (ADIs) at a fixed rate of 0.25%. The purpose of the facility is to lower banks' funding costs in order to reduce interest rates for borrowers and to encourage lending. Banks will get additional funding if they increase lending to business, especially small and medium-sized companies. Simultaneously, the Australian Government announced a complementary program for non-bank lenders.^[3]

On 19 March the Australian Prudential Regulation Authority (APRA), the country's bank regulator, announced it was relaxing bank capital requirements so banks can continue to provide credit to customers during the pandemic.

The agency told banks that they could "utilise some of their current large buffers to facilitate ongoing lending to the economy," particularly so they could take advantage of the Reserve Bank's three-year term funding facility. The APRA noted that "over the past decade, the Australian banking system has built up substantial capital buffers" and "is well-capitalised by both historical and international standards."^[4]

On 20 March the Australian Banking Association said Australian banks will defer loan repayments for six months for small business borrowers affected by the pandemic. The program will apply to more than A$100 billion of existing loans.^[5]

Australian Government

On 11 March the federal government announced a A$17.6 billion economic stimulus package that includes:^[6]

• A$4.76 billion to fund one-time A$750 payments to 6.5 million lower income Australians
• A$6.7 billion to provide up to A$25,000 to small and medium-sized businesses to cover employee wages and salaries
• A$3.9 billion for increasing the business depreciation limit to A$150,000 from A$30,000 and allowing more businesses to qualify for the deduction
• A$1 billion to support those regions most significantly affected by the pandemic

In addition, many of Australia's individual state governments announced their own stimulus packages.^[6]

Second Stimulus Package

On 21 March the government announced a A$66 billion package, which included a A$550 supplement to unemployment benefits and a second A$750 payment to welfare recipients.

In addition, the government said it will spend A$25.2 billion for cash payments to about 720,000 small businesses to cover their share of income tax withholdings for their employees. The money can also be used to subsidise wages.

Loan Programme

The government also created a new A$40 billion loan programme for small and medium businesses in which it will guarantee 50% of each loan's value. The three-year loans, which will be offered through participating banks, will be payment-free for six months.^[7]

Additional Unemployment Benefits

On 8 April the government approved a A$130 billion package that includes extending unemployment benefits and A$1,500 payments per employee every two weeks for businesses to keep workers on the payroll.^[8]