There will be another stimulus package from the Rudd Government, and soon.
Yesterday’s awful growth figures from China mean that, even if the December spend-a-thon produced a significant lift in demand, the Government will be deeply worried about the resources sector, which to date has ensured WA and Queensland continue to enjoy very low unemployment. Those of us who were trying to stay optimistic looked to China to stay buoyant. Now, that doesn’t seem likely; worse, low growth in China increases the chances of social unrest there.
The case against another package is that the Reserve Bank’s rate cuts are still working their way through the economy, and the fall in fuel prices has provided further cash to consumers. There’s also the Budget in May. But the Government’s focus is on stopping unemployment from rising, knowing how hard it is to get it down again. Rudd, Gillard and Swan aren’t going to wait until July — when the first impacts of Budget measures will be felt — to do something.
But options for the package all come loaded with cons as well as pros:
Cash handout — has already been tried, and those who miss out again are apt to complain. This time it could be directed at the swelling numbers of unemployed, but you get the sense the Government would prefer to talk about reskilling the unemployed, not giving them money. The plasmas’n’pokies aspect is also likely to attract more criticism second time around.
Tax cuts — will earn the Opposition’s support (albeit the sort of support that consists of incessant sniping), but are only available to wage and salary earners and likely to be banked or put on the mortgage.
Infrastructure — hundreds of millions of dollars of projects have already been brought forward and local councils got a handout for ready-to-go projects last year. It’s unlikely to provide much of an immediate boost and you wonder about the quality of projects Governments rush to build when they want to ward off recessions.
Extending the First Home Owners Boost due to end in June. The sector has been pushing for an extension until December, particularly of the new homes segment. Unlikely to provide an immediate stimulus, but addresses the ongoing shortage of housing stock across the country. And the Government has focussed very heavily on housing in its first twelve months.
Company tax cuts would provide a direct means of assisting business, with flow-on effects for employment. The Government is desperate to prevent job shedding; cuts to State payroll taxes might have more direct benefit, but that’s beyond the immediate reach of the Commonwealth.
Green investment Green is the fashionable stimulus colour, particular in the United States. Energy efficiency retro-fitting of households and businesses would provide ongoing cost and carbon savings, could be linked directly to expenditure and distract from criticism of the Government’s weak ETS
So here’s a prediction: the Government will most likely opt for a partial bring-forward of the 2010 tax cuts and an early introduction of the July tax cuts, a new energy efficiency rebate for households and accelerated green depreciation for businesses, and an extension of the First Home Owners Boost. Total back-of-the-envelope cost: ~$1.1b for tax cuts for the rest of this year and $600m for a green stimulus; another $4.5b for tax cuts in 2009-10, $2b for energy efficiency and maybe $1.2b for the extension of the First Home Owners Boost.
That sort of package will have the benefit of preventing the Opposition from complaining about the fall into deficit, allow the Government to display its increasingly tattered environmental credentials and keep the housing sector humming.
Still, as the economic news gets worse each day, you wonder if even with the biggest imaginable package the Government isn’t taking a knife to a gunfight.
Why would you encourage people in overvalued housing as unemployment is rising? Isn’t this just creating a subprime problem of our own?
You can’t avoid job losses if you are going to restructure the economy, which is what is happening and what is necessary. We had employees in the recent economy performing tasks which were not needed, i.e. we were over-lent, over-housed and over-retailed. The restructured economy will not have the same jobs but there will be new jobs. The people who lose their old jobs need to retrain so they can get the new jobs. Some businesses will not bounce back, so they can’t and shouldn’t try to hang on to their employees until the hoped for better times return. Recessions are renewals but they are messy. Some people get hurt. A return to the exact economic equilibrium as the recent good old days just won’t happen.
As Rudd’s last stimulus ended up benefiting the gaming industry and China. (Why Australian companies think it is smart to sell our valuable resources for peanuts in exchange for cheap and tawdry knick-knacks and kid’s toys says a lot about the disdain with which big business regards their own country) Would the clever little Kevin Rudd care to spend our next so called stimulus-out of OUR tax money- on something important? Something like improving the education of Australians for whom tomorrow’s scientists, engineers, economists, artists, writers, etc. will begin to benefit. Assuming we have teachers with the ability to teach, that is.
Throwing billions of dollars on a losing horse is about as sensible as the people who over-weighted the unfortunate animal in the first place.
The little man is a God-Botherer but his Canute like performance thus far gives the impression that unlike king Canute, Rudd believes he really can stop the waves.
Bernard Keane’s thesis about lavishing our money on the unemployed seems questionable. Why keep helping the lame dog? It’s the working dog who needs the support. Helping them to learn new skills is, on the surface a good idea. But how do you keep track of whether the money is really being used for this purpose? There’s a TAB betting casino/pub up the street from here. It is filled by these so-called workers, all in their worker’s clothes, their Utes full of expensive equipment stand idle in the car-park, while their owners sit drinking and gazing at these machines which rattle around like mummified brains being shaken in a dried-out gourd. Are these the sort of people who need to be helped?
Of course government employees could set the standard by refusing to accept their unquestioned and unaccountable pay rises. Ha bloody ha!
From what I have seen on other blogs about this issue, the knife to a gunfight analogy is accurate. Swan wants to secure something north of $40 billion dollars of foreign loans, Rudd wants to replace the 20% of consumer spending which is credit derived. The Government is going to have to come clean on the fact that it simply doesn’t have enough money to become the consumer-of-last-resort for the entire economy.
the way out of the “crisis”.
the problem in such times is over taxation. during the boom times we have become used to more and more tax being imposed. now the recession has come the government is still taxing at boom time levels and wondering why things are still going wrong. with a small tweek of the tax system australia will become the number one country to live in.
the tax system needs to changed for just a few years
the new system:
all tax deductions to be reviewed, such perks such as company vehicles, petrol deductions, business deductions, “trusts”, are no longer eliglible for tax deductions. instead tax deductions can only be bought by buying renewable energy products (approved). lets say you were one of the hardened middle class trying to save your money and offset tax in a big way, the present system allows you to do this at the expense of the rest of society. if you wanted a tax deduction of 30,000 lets say you would now have to buy 30,000 of renewable enrgy products to gain that tax deduction. as a result your tax deduction will be exactly the same, you would be using less carbon to fund your lifestyle, you would be saving money for the next 30 years, the poor would have jobs not handouts and unemployment would magically drop. the kyoto agreement would be met, global warming would slow down and the rudd government would weather the storm.
people would still be taxed but not overtaxed, government already taxes on everything else so money would still be available for government expenditure. with hybrid and fuel efficient cars also being tax deductible the rich would rush out and buy cars. lesspetrol would be consumed and fuel prices would drop topto a level where the poor can buy fuel easily.
funnel tax deductions into purchases and the whole problem disappears overnight.