Economic policy responses towards mitigating the effect of Covid-19 are coming in fast and furious. The measures are quite diverse, but there are some emergent themes. Policymakers are obviously targeting those sectors and regions that are most vulnerable to the supply and demand shocks that are playing out across the globe. They are also targeting those businesses that tend to be vulnerable to shocks in general, such as small businesses.
Some statements make an attempt to couch the economic packages, especially on the fiscal policy front, with language that signals prudence. For instance, Indonesia indicates that the fiscal deficit to GDP ratio is still quite low even after the injection and Australia includes favourable language from credit ratings agency S&P.
The measures are also time-bound with a clear end-state. It’s hard to assess how credible the commitment to an end state is. If an economy remains in doldrums after the deadline, the temptation for slippage is quite high, as we’ve seen in past crises (and may also be justified).
Some interesting examples:
- The Australian government put forward measures to the tune of $17.6bn (0.9% of annual GDP) support to the domestic economy (in addition to $2.4bn to support the health system).
- The guiding principle of the Australian response is that it should NOT have a permanent or structural impact on the budget balance. The fiscal response is intended to maintain debt sustainability and has received favourable language from S&P.
- A related principle is that the measures need to be “aligned with the many other arms of policy and activity, in particular monetary policy, and with the responses of other governments, particularly at a state and territory level”
- The package includes:
- Expanding the scope of an instant depreciation clause to more businesses (a small business incentive extended to large businesses)
- Introducing a time limited (15 months) business incentive for accelerated depreciation
- Cash flow support for small employers (aimed at 690 000 businesses)
- A 9 month wage subsidy for employers to retain apprentices
- A one-off $750 payment to social security, veteran and other income support recipients and eligible concession card holders
- Support for regions, communities and sectors
- waiver of fees and charges for tourism businesses; the waiver of entry fees for Commonwealth National Parks
- additional assistance to help businesses identify alternative export markets or supply chains.
- measures will also be developed to further promote domestic tourism
- tax authorities providing administrative relief for some tax obligations for people affected by the Coronavirus outbreak, on a case-by-case basis.
- Bills to be introduced speedily in Parliament by the end of March
- Temporarily waived social security contributions for businesses
- Easing the tax burden for firms in the most vulnerable regions and sectors, including transportation, tourism, and hotels
- Guide financial institutions to increase 300 billion yuan ($42bn) in low-interest loans and provide targeted support to individual industrial and commercial households – flexibly adjust the repayment arrangements for individual industrial and commercial households that have been severely affected by the epidemic, have difficulty repaying due, and have temporarily lost their source of income, and reasonably extend the term of the loan
- Reduction or exemption of social security expenses
- Implementing tax deductions and exemptions. While continuing to implement the policy of exempting VAT on public transport services, living services, and providing necessary living materials for courier delivery services, residents will be exempt from VAT in Hubei Province from March 1, 2020 to May 31, 2020
- For large commercial buildings, shopping malls, markets, industrial parks and other lessors who have reduced or exempted rent for individual industrial and commercial households during the epidemic period, if it is really difficult to pay real estate tax and urban land use tax in the same year, they can apply for relief
- For individual industrial and commercial households who rent house assets of administrative institutions, government-owned entrepreneurial parks, incubator parks, commodity trading markets, entrepreneurial bases, and operating houses leased by state-owned enterprises, local governments are encouraged to reduce rents based on actual conditions.
- Guarantee the electrical supply of individual industrial and commercial households. In the first half of 2020, the “non-stop payment of arrears” measure will be implemented for individual industrial and commercial households affected by the epidemic situation and unable to pay the full electricity and gas costs. The electricity and gas prices of individual industrial and commercial households in industries such as commercial circulation, catering and food, tourism accommodation, transportation and other industries are implemented in accordance with the phased-down policies issued by relevant departments to reduce electricity and gas costs.
- Encourage the role of Internet platforms. Encourage Internet platforms to relax entry requirements for individual industrial and commercial households, reduce platform service fees, and support online operations. Help individual industrial and commercial households use mobile payment, application software and other services to expand new operation models. Give full play to the advantages of platform institutions’ credit information, and cooperate with Internet banks and small and medium banks to help individual businesses expand their financing channels and provide regular interest-free or low-interest loans. Local governments can provide financial support to e-commerce platform companies with good assistance.
Republic of Korea
- Support package to the tune of USD16bn (20 tr won):
- Support a careful and proper disease control and prevention
- Provide as many as 7 million masks for people in Daegu City and Cheongdo County
- Promote the lowering of commercial rents by providing landlords with a 50 percent income tax break for the discount in the first half
- Provide a VAT break for businesses earning 60 million won or less a year
- Help small merchants and SMEs with their business operation
- Considerably expand the Special Financial Support for Small Merchant and SMEs
- Provide employment support for businesses hit hard, such as tourism
- Increase the issuance of local gift certificates this year by 3.5 trillion won to help local economies and traditional markets
- Give parent employees up to 5 days of childcare leave along with the pay of 50,000 won per day
- Promote consumption: Give a 70 percent individual consumption tax cut for car purchases, and a 10 percent refund for the purchases of high energy-efficiency home appliances
- Promote consumption by issuing discount coupons to be used for purchasing cultural events and farm products, as well as for tourism expenses and paychecks
- A US$8bn stimulus package to support the tourism, airline, and the property industries in the wake of the coronavirus outbreak (this will push deficit to only 2.5% of GDP)
- Waiver on taxes for hotels and restaurants in selected regions of the country – local governments will be compensated by the central government for the loss of taxes
- Extra funding for the Affordable Food Program to help 15 million low-income households buy staple foods.
- Exempting some workers in manufacturing from income tax and giving manufacturing companies a discount on corporate tax payments for six months (exempting companies in 19 manufacturing sectors from having to pay import taxes, while giving them a 30% corporate tax discount)