Coronavirus: These are the economic changes we need now

Coronavirus: These are the economic changes we need now, by Robert Gottliebsen. I think he hits an important nail firmly on the head.

I took a risk and lunched in a normally crowded restaurant. Myself and my CEO dining partner were the only people in the restaurant. It will shut on Friday and, without knowledge of its financial situation, I fear that it will be like countless others and will go broke. All over Australia smaller and medium sized enterprise businesses are set to be decimated. …

Australia is quite rightly being hammered by overseas investors as they dump our currency, our bonds and our shares. [1 AUD = 0.558 USD right now.]

Part of the Australian sellout is caused by a race to the “safety” of the American dollar [and because most debt repayments are in USD] but another major contributor is that suddenly the world realises that we are not only on the front line in the commodity fall but our “award” wage structure will destroy vast swathes of the small business employment sector.

That will send unemployment into double figures, where it will stay for a long time because countless small enterprises are set for inevitable destruction. …

We simply do not understand why our business sector is more vulnerable than most other countries.

The world saw our first “rescue attempt”, where thought we could overcome the problem with higher depreciation allowances and giving more money to the elderly and welfare recipients, as not only crazy but as confirmation we had a government which was out of its depth. The second package looks like being aimed at increased bank loans to small business and various grants, which will be better than the first one. But these measures will not address the problem. …

Our problem is compounded because other countries have greater flexible contract labour which they can shed so the business can survive. We employ people under awards which mean employees are entitled to money even if the business has no income. There are huge severance payments. That will destroy countless small businesses because they don’t have capital backing. The effect on the nation will be devastating. The award system was never designed to cater for a health scare of this magnitude.

Employees may get token sums of money but in the process they have lost their employer forever because the business is destroyed. This a major contributor to Australia being given the thumbs-down by the world.

Enterprises need the ability to suspend employees on no pay and have them move then quickly to a special category of unemployment benefits.

Most businesses are predicated on continual income. They borrow money, and the lenders check they have the income to make continual repayments. But the Wuhan virus is just nasty enough to cause a society-wide interruption, especially in businesses like tourism and airlines. The interruption destroys the assumption of continual income.

So the role of government, if any, should be to smooth over the interruption. It might be cheaper and better for the government to pay unemployment benefits immediately and allow businesses to lay off staff — because when the business goes bust they are going to have to pay unemployment benefits anyway, and for longer because the businesses won’t be there to reemploy them when medical normality resumes.

Meanwhile, on the markets, this is more than the usual correction from overvaluations based on hubris and an assumption of an unchanging environment. It is also a market trying to price in the future when dealing with an historically unprecedented event — pandemic in a highly-leveraged, just-in-time global society.