Well I’ll see your stimulus, and I’ll halve it!

Like the Opposition, I actually do believe that the Rudd Government’s blockbuster $42 billion stimulus package should be subjected to a reasonable degree of scrutiny. I don’t buy the government’s line that this stimulus package is so incredibly urgent that the Senate should not be permitted to conduct an inquiry, bargain or make contrary recommendations. On the other hand, given the economic climate, I do believe the Senate should be seeking to maximise both robustness and swiftness of deliberation when tackling the package – mutually opposing principles perhaps, but then we live in rather difficult times.

This is where I part company with Opposition Leader Malcolm Turnbull. I honestly believe that Turnbull’s rhetoric on the stimulus package is out of whack with the majority of his economic policy peers globally, and the general mood out there in the electorate. In most other scenarios, I would agree that tax cuts are a vastly more sensible means of passing excess government funds back to the electorate than one-off handouts. The scenario that the Rudd Government and the rest of the world faces today, however, is somewhat unique. The economy needs additional activity to be fostered now, not incrementally over the coming years. The results are in for Federal Labor’s December 2008 stimulus package, and they seem positive. The Coalition has painted itself into a corner now, with a series of ugly budget blowouts in the coming years the only possible saving grace for their position.

This leads us neatly to the other quirk in Turnbull’s rhetoric. By proposing that the government’s stimulus package be halved, Turnbull is gambling that the fear of the economy tanking as a result of government inaction is less than a fear that the deficit in the budget is going to get out of control and plague federal governments in the years to come. Some folks in the media and Liberal operatives are already trying to frame the current situation as the “deficit we had to have”. This is strangely enough true, although perhaps not in the way that some are trying to frame it. The abrupt reduction in projected tax receipts for the Federal Government as a result of the global financial crisis could not have been predicted in May last year, and even if the Coalition won at the polls in late 2007, it would find itself in the midst of a budget deficit today. This is a deficit that is not of Federal Labor’s making. It may be somewhat extended by their actions, but given their actions are quite closely tied with the prescriptions of the world’s economic orthodoxy, the Rudd Government has some defences in reserve if it needs them.

Politically speaking, this was not the right time for Turnbull to skimp. Unless the Opposition punches some serious holes in the Rudd Government’s package over the next week or so, it is not going to gain any political capital from this odd little diversion into one-downsmanship. I also don’t believe for a moment that the Coalition caucus unanimously backs Turnbull’s stance. They seem to just be biding their time and hoping that Turnbull is going to somehow get lucky by pursuing this approach.

3 thoughts on “Well I’ll see your stimulus, and I’ll halve it!

  1. At the moment what the Australian people want more then anything else is job security and some confidence in the future, all which the Rudd Government is not offering.

    There is no doubt this is a government on L plates. Although there are some things contained in the mini budget which are good the majority of it is a disaster,

    · it does very little for employment,

    · at best it will give the economy a short term kick at the risk of long term prosperity,

    · it doesn’t give enough bang for the buck,

    · it doesn’t do anything to install confidence, (in fact it seems Rudd is obsessed with talking the economy down, the Greens should take him on big time on this. I am sure Rudd’s motive is to talk it down as much as possible then become the big hero when it all gets better and in the mean time he is causing a disaster)

    · the cash hand outs are great but there no good if you don’t have a job, (the threat of getting retrenched or the fear created when someone you know gets retrenched is a lot more important to people then a few hundred dollars)

    · the home insulation package is a great initiative but will be a disaster, it will take years to roll out as there are not enough installers to install insulation in every one’s house in any reasonable time to have any significant effect on the economy but worst of all will result in a lot of sharks getting into the business. The package needs to be done in stages to result in a successful roll out. Perhaps it should be means tested in the first roll out to limit the take up all at once. (The Liberals when in government experienced the same problem with implementation when they introduce the gas conversion for cars, there were people who wanted to take the offer up but couldn’t get it done)

    To date, most of the Rudd government stimulus has been focus on consumer retail spending which will not create many jobs, if retail sales go up for a short period due to money stimulus at the best it may put off staff redundancies for a few months but more likely the retailers will only seek greater productivity out of its employees for that short period of time knowing to well the stimulus will only be short lived.

    Any stimulus package should be spent where it can be leveraged to get the best bang for the buck and create jobs and job security e.g.

    · funding packages and tax breaks for investment would motivate companies to invest their own monies. There are many companies which have shelved shovel ready projects which could commence quickly with the right government incentives. History has proven that trying to kick start government projects quickly is almost a impossibility therefore the reliance and incentive has to be for and on the private sector.

    · bringing forward tax deductions for middle to low income earners would increase the spending power of consumers on a continue basis and for some would give them that extra buffer they need to survive or even enter into a house purchase.

  2. I agree senate scrutiny is useful, unfortunately, opposition to the government in committee seems to be more about the /amount/ of the stimulus rather than the /where/ and /how/.

    The only ojection is that they want a tax cut, which won’t benefit the most vulnerable – those on benefits including wage supprt because they can only get a few part-time hours.

    I’ve got my own ideas of course on how the money could be spent: increase the public service (secure jobs), including running a wider range of government business enterprises.

    I’ve also got to wonder how much scrutiny the plan had before the announcements (to be seen as doing something big). Did they grill a whole lot of senior public servants and models before making their decision, or did they just talk in cabinet about what would play out best to the punters?

    Also, they are trusting the state premiers to spend…. have you seen audit reports on cost-effectiveness of state contracts lately?

  3. Tony, I’m not sure it is fair to say that the package does very little for employment. The one-off payments should ensure that a decent amount of money is slushing through the retail economy, money which should help to preserve the jobs of those at risk and that may result in new jobs being created. Similarly, the fairly massive construction programs announced for the nation’s schools and public housing should create a significant amount of demand for blue-collar work around the traps.

    I think you’re right that the insulation program may have some unforeseen and undesirable effects on that industry – but we’ll have to wait and see. A lot of people these days either live in apartments or already have insulation, and for them the program is redundant.

    Dave, you’re right, it is a little worrying that we don’t really have much oversight over just how the Rudd Government came to offer up the package that it has put out there. I suppose in some ways the old sausage-making adage might apply here, but even still, it would be nice to know if the package is actually based to any extent on the advice of experts in Treasury and the economic community more broadly. How much of this package is political, and how much of it is what the Rudd Government perceives based on advice to be “best practice”?

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