"PM Kevin Rudd goes for broke with $42bn stimulus package"

A clever headline in today’s Australian, nicht wahr?

It was nice to wake up and find that Uncle Kev is handing out more cash to us in a few months. We have a nice new fridge from his Christmas present, but another hand out of about twice that much will be very welcome. Even if the Australian budget is going to be in the red for the next four years… or more…

Interesting then to read this article in The Age today:

Good, Bad and the Amoral:
Tim Colebatch
February 4, 2009

THIS is a mix of the good, the bad and the amoral. Most of it looks the right stuff at the right time. But parts look as if they are designed to fight Malcolm Turnbull rather than a recession.

And the worst is what is not there at all. There is nothing to help the real victims of the recession: the 800,000 Australians whom Treasury expects to be unemployed by June next year.

Prime Minister Kevin Rudd, apostle of economic morality, has overlooked one basic fact — recessions make most people better off. Our mortgage bills plummet, our taxes are cut, and as inflation sinks, our wages rise faster than the prices we pay. Most of the $16.6 billion he shovelled out yesterday in handouts will go to people who will end this recession better off than ever. We might spend it, we might save it, but we don’t need it.

Those who need it are the poor people who bear the cost of the recession on behalf of the rest of us: workers who lose their jobs, apprentices laid off, youngsters who can’t even get into the labour market, and businesses and self-employed people who go broke. There is nothing in this package for them.

…Perhaps Rudd’s next essay for The Monthly could be on the morality of kicking the victims.

Yesterday’s package could have been worse. The last time we went into recession, the Hawke government and the Reserve Bank decided to crack hardy and do nothing. They kept interest rates high, accelerated tariff cuts and took two years to frame a stimulus package.

This time you can’t fault the response. …If you restrict yourself to the three Ts advocated by Treasury — new spending should be timely, temporary and targeted — it clears two of the hurdles. It could hardly have come faster, and every new program yesterday would end by 2011.

But is it targeted? Some parts, such as the public housing initiative, tick all the boxes. It goes to an area of real need, provides an immediate impact on output and jobs, and will leave us with a valuable asset. The same is true of the $15 billion investment in schools.

But giving handouts to taxpayers and families regardless of need is electoral politics, not a strategy to fight a recession.

I know what Colbatch is getting at – but I wonder if he quite understands what this latest fist-full of dollars is all about. It is about spending on luxury items – like fridges and mortgages – not food and rent. It’s supposed to “stimulate the economy”. The poor are not going to spend their money in a way that “stimulates the economy”.

Am I being too cynical? Again?

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11 Comments

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11 responses to “"PM Kevin Rudd goes for broke with $42bn stimulus package"

  1. IS

    Will people really buy expensive things? Or will most use it to pay of the credit card or other loans…??

    He should spend the whole lot on roads… roads… will always be needed. Public housing is okay – but are we going to create ghettos in the process??

    Jobs… create jobs… what good is $950 if you lose your job 3 months later. People will be saving that $950.

  2. Aussie Therese

    When we got our first payment (which was pretty hefty since we have 7 children) I said to my husband this is nice but I worry this is going to come back to bite us eventually. I think the same thing with this new payment.

    Therese

  3. Salvatore

    I must say I love the idea that a mortgage (i.e. a house) is a luxury item!

    But is does need to be pointed out that unless all those “nice new fridges” are manufactured in Australia it’s not our economy that gets the benefit. On the other hand all those poor people who spend it on food or rent (or just slam it into the bank) really are benefitting our economy.

    Have you also considered this as a question of justice? After all, we’re all citizens, we all pay taxes, and yet only some of us will benefit from Mr. Rudd’s largesse.

  4. matthias

    Ilike the infrastructure component,but the other aspects seem to be inequitable.
    This also sshows that KRUDD is still a bureaucrat at heart and not a statesman. What would our greatest PMs’-Curtin,Chifley and Joe Lyons ,and Menzies-have done? Notice i left the Presbyterian till last

  5. Schütz

    I do hope you can all see that my comments were made somewhat “tongue-in-cheek”!

    Nevertheless, I think we are at a time when the mortgage can almost be called a “luxury” item. Home owners are benefiting from this round, but the rent rises are going through the roof. Cathy and I have got to the point where we have accepted we will probably never own a house, but we are finding it increasingly difficult to afford the rent as well, which has gone up 20% in the last 13 months.

    Re roads. Couldn’t agree more. I love roads. I think for the economy they are the best thing since sliced bread. You can’t use public transport for industry. Some of these billions could have been used to pay for the Eastern Freeway, which, as a toll-road, is costing families as much as $120 a week.

    The only thing I love more is rail. I am really annoyed that in this vast country, the possibilities of rail is under utilised and what there is is over expensive.

    Re Fridges. Ours is a Westinghouse. Made here in Oz. We wouldn’t have bought an overseas brand.

  6. Louise

    Cathy and I have got to the point where we have accepted we will probably never own a house, but we are finding it increasingly difficult to afford the rent as well, which has gone up 20% in the last 13 months.

    Do come to Tassie, David!

  7. Peregrinus

    Actually, buying a house is a luxury purchase. It’s more than simply putting a roof over your own head, and the heads of your family; you can do that by renting. Buying a house puts a roof over your head and in addition gives you a substantial and durable capital asset which you can leave, on your death, to your children who, by then, are usually adults with (owned or rented) homes of their own.

    Nevertheless, I think the object here is not to relieve poverty. Poverty is something a government should be active about all the time, and not just when there is an economic crisis. The object is to stimulate the economy and, from that point of view, the middle class family who spends $950 getting the outdoor eating area paved will be doing more for the Australia economy – both the bricks and the labour will be sourced in Australia – than the poorer family who use it to buy a, perhaps much needed, cooker or washing machine that happens to be imported. “Luxury” or “necessity” has nothing to do with it.

    Road, rail and other public infrastructure also stimulate the economy, and there will be a fair amount of that done. However that won’t happen quickly enough. Large infrastructure projects take a while to get going. Even if the project has already been designed, and the planning and environmental approvals obtained, in advance of any funding being approved (which, for obvious reasons, is not usually done), it’s still necessary to draw up a construction plan, put the project out to tender, award the tender, and wait for the successful contractor to source the plant, labour, materials and subcontractors that will be needed. All that takes many months; usually over a year. But the government wants to stimulate the economy now. Handing out cash, if it can be effectively targeted at people who will spend it locally, is probably a good way to do this.

  8. matthias

    The problem with Victoria Schutz is that we have never had State Transport ministers with any vision beyond the next election,or they have been totally captive to roads. look at Bolte and his freeways,kennet and citylink. The rail tunnel between caulfield and Werribee should have been built the cards when the Undergound rail loop was being built. Now we have Lyn Kosky as Transport minister-she runs at the first train cancellation

  9. Louise

    Actually, buying a house is a luxury purchase.

    Not in my understanding of oikonomos.

    It’s more than simply putting a roof over your own head, and the heads of your family; you can do that by renting.

    Provided you don’t have to keep shifting all the time because of landlords etc. Modern economics have totally undermined family and stability.

    It is explibla!

  10. Peregrinus

    Well, of course, there’s a large measure of truth in this. But, the point is, it doesn’t have to be so. Renters have a rought time at leasts partly because as a society we have decided that everyone ought to aspire to own their own home, everyone ought to be encouraged to do this, renting can be considered a temporary expedient which largely caters for the young, the restless and the shiftless, etc, etc. So it’s a little glib of me to say that buying a house is a luxury purchase; it ought to be a luxury but, as a society, we’ve decided to make it a necessity.

  11. Elmono

    First of all the argument that the government should never run a deficit is wrong. Governments need to balance budgets over the long term i.e surpluses in the good times and deficits in the bad.

    To be honest it does not really matter whther it is spent on luxury items or food as long as it is spent. The problem is that Demand has dropped out of the economy. In realty it would probable be best to give the mone yto the poorest because they are less likely to save the money. Paying down a debt is in effect saving anyway so if the poor are already the most indebted i don’t know wha the resulting boost to demand would be. And while

    Also i would like to counter the claim that buying forein made gods will not boost domestic demand as these purchases will still provide a demand boost to domestic retailers.

    Infrastucture spending is great for the increase in supply in the future and it needs to be done and it can be argued that their is not better time to do it then when you have the license to spend the money. In reality though they take time to organise and the they are not the great employers that they once were.

    Spending are also necessary for the long term well being for Austrlians, the long term health of our economy and they do not take as long to organise and will mean alot more money is spent on employment.