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.