Is stimulus package really beneficial, or is it just delaying the inevitable?

Is stimulus package really beneficial, or is it just delaying the inevitable?

With the news channels constantly flashing worsening situations, and Twitter being persistently bombarded with safety measures, the world no longer seems to be a peaceful place. People’s worst imagined fear appears to be materializing with the reddened coronavirus area engulfing the entire globe. Gone are the days when we were grumbling about meager travel cancellations as the pandemic enters another stage where one’s mind adopts a single centric focus towards health and financial safety.

It has been weeks since WHO declared COVID-19 as a severe pandemic with very high risk. As per the situations report on 19 March 2020, the epidemic has spread to different world regions affecting over 209,839 people and causing 8,778 deaths. The addition of 16,556 cases in 24 hours is enough to send shivers down the bone. The majority of the countries are battling to curtail the severity of the epidemic through the implementation of social distancing and quarantine measures. 

Source: WHO as on 19 March 2020

The travel bans appear to be a part of the ‘COVID-culture’ which recently is also witnessing the new tradition of a lockdown. But as desperate times call for desperate measures, such implementations cannot be ignored. Amidst the plethora of restraining actions, government and its agencies are also taking economic booster measures that would aid in solving the economic woes faced by the country. The injection of the stimulus package comes as the government’s significant financial incentive to boost the market sentiments and save the looming financial crisis. 

 

The economy desperately looking for help

Moved by the uncertainty clouding the Australian economy as the buyers adopt a sceptic conservative attitude, the Australian government has rolled out a stimulus package worth $17.6 billion. The package comes following the RBA’s decision to cut the cash rate to a historic low of 0.25% to provide economic impetus to the slowing economy. 

 

The unavailability of coronavirus drugs and vaccines alongside the growing pace of infection sends alarming signals. As the economic activity amidst the social distancing code of behaviour and lockdown significantly simmers down, the government’s concern regarding the epidemic is evident.

 

The high debt-to-income ratio of the Australian has remained a constant worry for many years. The concern regarding medical expenses topping the existing debt-associated woes may even make your favourite idea - shopping as a repulsive one. 

 

The stock market also does not offer any sort of relief as the stocks always crash down. With trade being shut and the supply chains heavily impacted, the business activities have come to a standstill. Amidst the present scenario, the S&P/ASX 200 has dwindled dramatically by 33.22%, representing a huge set-off for the markets. While the travel and tourism sectors appear to be utterly famished for revenues, the other industries have also joined the bandwagon of despair. 

Source: ASX

Amidst such conditions, the stimulus package is injected with the primary aim to motivate spending.

Stimulus package targeting low-earners and small businesses

If your salary slips do not show the right digit count, the ongoing emergency scenario could create a colossal conundrum in your life. As you worriedly twist and turn late at night while the peaceful sleep leaves you, the financial aid coming in the form of stimulus package can provide significant moral support. And maybe now you can enjoy your deep slumber.

The stimulus package promising a payment of $750 to each eligible participant is anticipated to garner the optimism in times of despair. The government is expecting to increase consumer spending that would likely aid in turning the wheels of the economy in the right direction.

Moreover, the relief or stimulus package comes as a significant financial aid for the companies. Considering the severity of COVID-19 pandemic, the small businesses are heavily confronted with the disturbing situation, thereby challenging their ability to operate smoothly. The stimulus catering to the financial crunch is mostly rolled with the expectation to bolster business spending.

Is the plan panning out? 

The government’s endeavour to provide the economic impetus through the financial aid offers significant sentimental support to both the people and businesses. While it manages to emancipate the worrisome disposition, for the time being, the severe concerns still linger for the economy. The injected amount can go through the absorption process, thereby not releasing anything useful in the marketplace. 

Plagued by the twist of events generating irrevocable uncertainty, the people are expected to save money rather than spending it. The pensioner at the receiving end of the stimulus is more likely to save money for an impending emergency. Similarly, amidst the social-distancing norm of the current time and the demands for many products fallings, the businesses could also avoid expenditures.

The stimulus package is more strongly directed towards the end results rather than the origin cause. With the problem source remaining still intact, it is just a matter of time when the root would start sprouting the same issues further bringing the economy back to the square one. 

The absence of elements in the package directed at dealing with the virus through R&D activities might affect its ability to eradicate other related problems that emerge from the epidemic. The package neither targets assisting the exhausted medical system of the country nor does it provide aid to the national agencies, which together are incredibly crucial for not only fighting the virus but also waging war against the secondary effect of the disease. 

The primary question surrounding the government’s particular measure is “Till when can the government continue to operate its cash pumping mechanism?” If the condition of the epidemic further deteriorates in Australia, people, despite the cascading incentives, would prefer to be conservative in their approach. 

Furthermore, the investment owing to the market corrections may also witness substantial downfall as the investors might not find them ready to spend their precious cash. Amidst the growing medical threat, risk-averseness in the market has skyrocketed. The cash pumping mechanism adopted collaboratively by the central bank, and the coalition government may not generate positive prospects as the investor’s psychology no-longer remains the same.

Bottomline

The coronavirus emergency is creating surging chaos as it put brakes on the day-to-day activities of the individuals. The conservative drive has risen as the people take extra cautionary measures to avoid medical issues and probable financial issues. In the wake of such circumstances, the additional inflow of cash in their wallets would serve to reduce their worries and not their conservatism. Or maybe it is just that meagre economic impetus would be provided through the essential, necessary items. The success of the government incentive program largely depends on the time it would take to contain the epidemic; otherwise, the package is just delaying what is inevitable.


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