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Can the federal government stimulus save the ASX from the bear market?

Prime Minister Scott Morrison is the man of the hour. Investors will be hanging on to his every word when he and Treasurer Josh Frydenberg unveil their coronavirus-busting stimulus plan.

There are already details being leaked to the media on the areas being targeted by the government that’s worth around $17 billion.

I am expecting the federal government to announce even more than this. The UK is committing close to $60 billion to support its economy amid the COVID-19 pandemic and the Australian government poured over $40 billion to keep us afloat during the GFC.

The $17bn crumb

The $17 billion looks a little pathetic and it won’t save the S&P/ASX 200 Index (Index:^AXJO) (ASX: XJO) from slumping deeper into a bear market.

The share market may not necessarily represent the real economy, but it has a big sway on consumer and business sentiment. There are already signs that the economic damage from the virus is far more extensive than the health threat it poses.

Saving jobs

Coming back to what we know about the government’s stimulus plan, businesses with a turnover of less than $50 million will get up to $25,000 to keep their workers in a job. The federal government is also providing sweeteners to companies to retain apprentices.

Around 690,000 businesses employing approximately 7.8 million people will benefit from the $8 billion job and apprenticeship support measures, according to the Australian Financial Review.

Instant asset write-off

Businesses will also benefit from an expansion of the instant asset write-off scheme. The threshold for eligible business purchases will be lifted to $150,000 from $30,000. More companies will also qualify for the instant write-off, which allows them to deduct the full amount for plant and equipment instead of depreciating it over a few years.

In the past, only companies with a turnover of $50 million or less could do this. This bar is lifted to companies with annual revenue of $500 million.

Boost to retail spending

Just as significantly, those on Newstart and pension payments will get a cash handout. This is expected to stimulate the economy as lower income households tend to spend extra cash compared to wealthier consumers who would be inclined to save the handout, or use it to pay down debt.

It’s a politically sensitive move. The Morrison government has steadfastly refused to lift Newstart payments despite calls from welfare and even business lobby groups who believe the allowance isn’t enough for anyone to live on.

Foolish takeaway

These are good measures, but it won’t go far enough to save the ASX from further losses or even stave off a recession – not in my opinion.

If the federal government is serious about keeping Australia afloat, it will need to pull out all stops. What’s been leaked so far looks weak compared to our Asian neighbours and the UK.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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