The Government’s second attempt at breathing life into the Australian economy is a two-stage employment and demand stimulus package that will cost $41.5b. Coupled with the massive negative impact of the global recession on tax receipts, the package will send the Budget into a new deficit record of $22.5b this year and over $35b in 2009-10.
The first stage of the package is an immediate injection of $11b into the economy, to start rolling out in March, with handouts to taxpayers on less than $100,000, single-income families and a bonus for families with school-age children. The handout repeats the approach of the Government’s December cash injection, but this time targeting low and middle-income earners, who’ll receive more than $8b. Depending on their circumstances and number of children, some families might reap several thousand dollars in Government cheques in coming months. There’ll also be a half-billion dollar bonus for students to meet education costs and to encourage unemployed people back into training.
The second stage is a jobs package rolling out in 2009-10 ($15.7b) and 2010-11 ($9.8b). The headline component is a massive $14b infrastructure program for Australian schools to upgrade libraries, halls, laboratories and enable general maintenance. There will also be 20,000 new homes funded via a $6b housing package, the $3b insulation program already leaked overnight, and a temporary investment tax break for small businesses.
The Government is counting on generating 90,000 jobs from the package between now 2011. Treasury remains convinced Australia will avoid a recession on an annualised basis, predicting growth of 1% this year and 0.75% in 2009-10, with unemployment only rising to 7% by June 2010. Part of the reason is the strong rural performance, with farm product tipped to grow 11% this year and 5% next.
As usual, however, the lack of quarterly forecasting means the figures allow the possibility of a recession during part of the year.
It was only in November that Treasury forecast a $5.4b surplus. Since then, tax has fallen and expenditures have risen by nearly $10b and Government decisions, including this year’s components of the new package and other new funding such as COAG, have added a further $18b to the deficit. There’s a far bigger turnaround next year when the budget moves from $3.9b surplus — always a fairly notional figure — to a $35.5b deficit.
Given the optimistic domestic growth and employment scenarios used by Treasury, that figure could turn out to be far higher. Unemployment of 8% or 9% would generate “parameter variations” in the billions.
Treasury has hewed to a more mainstream line on international growth — 1.75% contraction in the US and Europe next year, 2.5% contraction in Japan, and only 6.5% in China. This will lead to a collapse in Australia’s terms of trade of nearly 13% next year, with the current account deficit rising to 5.5% of GDP.
As bad as all this sounds, Australia will be doing well to achieve these numbers.
I think it is better not to try and shoe-horn this issue into a bygone battle between the Keynesians and the Friedmanites. It might, or might not, have worked in the 30s, it might or might not be different under Howard or Turnbull but that really does not matter right now. The problem with the bailout is that the govermment as gone directly from “people have no money to spend, and businesses have no money to invest” to “therefore we must give them money to spend and invest” without answering the critical question of why the credit has crunched. Surely the issue is that banks are not lending and, now that interest rates are low as they can go and their deposits are guaranteed, this can’t be solely because they are broke. Perhaps it is because they don’t know the extent of their own liabilities and are afraid to lend. So, for my money, one thing we could but for $42 billion is a compulsory third-party (and I mean treasury, not S&P) audit of the banks liabilities with full disclosure. If they are still broke then, then buy them or form a proper lending institution like the CBA once was. Anything but this throwing money at the hole like an hysterial housewife lobbing poorly aimed shoes at a mouse.
Is this bloke trying to trash the economy?
This Keanesian crap didn’t work in the 30’s or the 80’s and now here we go again.
The only thing that is likely ot keep things going here is no tax on employment and no tax on income.
Don’t expect any better from the other crowd.
It’s just socialist junk. The reason the capitalist system failed was the level of corruption within from the US Govt down. There a laws for fraud but no one enacted them. Remember Enron..the guy went to gaol so the laws work if they are applied. More regulation isnt going to stop people who are skirting exisitng regulation.
The law didnt stop Madhoff or any of the others so why think new laws will do any better. They have to be enforced. But when the perpetrators are also the enforcers (Madhoff is a former head of Nasdaq) you have a problem.
Buy gold and hang on!
A tentative suggestion. Perhaps if we were to refrain from socialist/capitalist swipes at any party our comments might be read. Or listened to. I am as guilty as hell but I can try to change my ways.
I am so pleased about the building public housing for all those unable to get into the mainstream of living with mortgages and dependent on too high rents. So far there is no retro-fit of old housing stock, but at least there will be houses built to environmental standards for more folk to live in – as we adapt to climate change.
The Rudd Government is doing something good with an awful situation created by the worst of capitilists.
The whole aim of the game seems to be about making sure economic growth continues – with growth defined as increase in economic output. If growth over the next three months is 0.1% then Mr Rudd has succeeded – if it comes in at -0.1% then presumably he has failed.
What a lot of mumbo jumbo!
Increased consumption of cigarettes and alcohol increases economic output both as a direct consequence of their consumption and because of the related increase in health care needs. A divorce generates both lawyers fees and the need to buy or rent and outfit a new home-increasing real estate brokerage fees and retail sales. Should we be encouraging smoking, drinking and marriage breakdown to increase economic output?
Studies in a number of other countries have shown that the quality of living of ordinary people has been declining as aggregate economic output increases. Yet our leaders still keep banging on about growth
I can only think of that famous saying of the Cree Indians “Only when the last tree has been died and the last river been poisoned and the last fish caught will we realise we cannot eat money’.