The Greens oppose the CPRS not because it is too weak, but because it will point Australia in the wrong direction with little prospect of turning it around in the timeframe within which emissions must peak, says Senator Christine Milne.
Kevin Rudd’s ham-fisted stimulus fails
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The feeling among most economists and voters is that the Rudd Government’s stimulus has been a roaring success, rescuing the economy from certain malaise and deep recession. In one sense, the stimulus has worked — Australia has been one of the few major economies to avoid recession (at least in a technical sense). However, there is a very big difference between avoiding a recession and successful economic policy. AAP yesterday reported that “motor vehicle sales data showed a seasonally adjusted 6.9% fall in July, the worst monthly fall in eight years”. With Westpac senior economist Matthew Hassan [stating] the data is a critical bellwether of consumer demand, usually falling early in a downturn as consumers worry about losing their job. There is a simple explanation for the record drop in vehicle demand — that is the tax break offered to business for purchasing a new vehicle before June 30 simply caused demand to be pushed forward. No fresh investment was made, rather, people who would have bought a vehicle in July or November or next year purchased it before June 30. An insider from a major Australian vehicle manufacturer told Crikey that orders for June were well above expectations, with businesses buying multiple vehicles to take advantage of the lucrative tax breaks on offer. In some cases, business owners were able to get upwards of $15,000 off the purchase of a new vehicle (when the tax investment allowance and GST refunds are considered). No matter whether the vehicle was a ute or a luxury European sports coupe. Rarely is a government’s decision proven so foolhardy, so quickly. While economic growth ostensibly strengthened as a result of the various stimulus measures, that growth came at a steep cost — specifically, the repayment of borrowings for decades to come. Measures such as the $900 stimulus payment (which led to a record month for pokies operator Tabcorp) and the vehicle allowance (which gave business owners a tidy discount on their new Mercedes SLK) was paid for by taxpayers. And now with the stimulus over, car sales have promptly plummeted by a record amount. It appears that the Rudd Government’s stimulus is reminiscent of a school student who receives an extension on their project due — the project still has to be finished, just a little bit later. The Government’s stimulus measures (and the measures taken by the Bush and Obama administrations in the United States) have delayed the inevitable and propped up unsustainable businesses with taxpayers’ money (and borrowed funds). No better example is that of the ham-fisted vehicle allowance, which placed taxpayer monies in the pockets of car dealers and compelled businesses to simply bring forward their capital investment in what is usually a non-income producing asset. |
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9 Comments
Bravo Adam, I am worried that people seem to think the worst is over yet in this country we haven’t had a credit crunch or housing slump. I disagreed that the stimulus was the way to go, I thought that saving for infrastructure spending on necessary projects was better.
Nothing has been decided yet.
Time will tell
No need to congratulate or condemn anybody yet but its good to see an opposing view to the pro stimulus economic stories in the press.
I read somewhere that in 1928 they had a fall that the governments of the daythought they had handled but was followed by a much larger crash. Is this accurate?
Bringing forward capital investment seems like a perfectly valid action by government faced with step-sized reductions in demand after investment risk incurred a step-sized increase last year. This smoothing would have suppressed some of the recent instability in demand for product from factories producing vehicles and related components, with flow-on effects to employee earnings (and their spending) which naturally spread further out into the economy. The fact that these fixed term incentive rules were kept simple and didn’t involve vehicle type suggests that the main government focus was on stimulating demand in a certain way within a definite time frame i.e. it was the timing that was important.
Is it just me but why is it that so much commentary on economics in recent times seems to completely ignore the dynamics of the systems involved? What I’d give to the first economics commentator to stick a couple of block diagrams up and talk about inputs and outputs, shocks going in at various points at certain times, what we might do to suppress nasty effects coming out somewhere else at some set of lag times, etc.
By the way, one of those nasty output effects being suppressed is presumably reduced shifts (or layoffs) in some of the car industry related manufacturers. In a country with a social security net that supports unemployed people, the government makes savings by keeping a few more people in work (full time or part time!). If the industries involved tend to have older workers (and I don’t claim to know the age distribution in car production line work), then certainly for older workers it is a good idea to smooth out these bumps and have fewer lose their jobs as they might never get back on board … the tax paying wagon.
A bunch of ham-fisted assertions without a shred of evidence, except for one month’s stats on motor vehicle sales. So far as “the repayment of borrowings for decades to come” is concerned, Treasury does not agree with this at all. Nor does the IMF on effects of the stimulus package. From this piece, one gets the impression that people like Adam can’t accept the clear success of the stimulus package and pounce gleefully upon any opportunity to portray it in a negative light.
Well bugger me its Humpty Hockey writing in the shadows. You summed it up Frank, this is sour grapes from a fly by nighter who is hoping and praying the economy will still come crashing down around him and his Liberal mates so they can poke their tongue out and sing ‘told you so’. Fat chance Adam, fat chance.
Frank and Raymond - agree completely. This is not the first article from Adam mindlessly bashing the Rudd Government. My favourite line “Measures such as the $900 stimulus payment (which led to a record month for pokies operator Tabcorp) and the vehicle allowance (which gave business owners a tidy discount on their new Mercedes SLK) was paid for by taxpayers”.
Yep, the money went to pokies (no plasmas Adam?) and the rich bought Mercedes on your money. No stats. No proof. Not even subtle. Could have been straight out of the mouth of Joe Hockey.
Not fair to Joe shock! At least Hockey seldom tries to pretend to any intellectual or econometric rigour and keeps his determinedly political, sceptical and prejudicial running commentary on the GFC to the shortest, least helpful and least specific analysis possible. There are indeed many issues related to the unwinding of the stimulus measures around the world that yet to be clarified or costed (even conceived?).
That is what we need to see being canvassed and developed most urgently.
Meanwhile, is it all possible the local car industry is currently affected by a whole slew of consumer negatives ranging from carbon and other pollutant costs, the sudden unwinding of first-world consumers’ confidence on the long-term - perhaps even immediate-term - future of petrol-powered vehicles, and the chaos surrounding the multi-national car industry’s future as a stock, industry sector and global hegemony if it persists in founding its products only on hydro-carbons.
Pull yourself together Raymond…and not apart.
How can you ignore this data? It’s not rocket science mate, first comes Day and then comes Night. If you hold back the Night to prolong the Day, then the Night is Darker and Longer.
Also, beware of the mini booms amid the bear market. In 1930 the market actually had a very brief mini boom during that recession but quickly followed by total economic collapse.
Stimuls is short term, sound economic planning is long term.
Gary Johnson, I’m sure you are the escapee from the deaf and/or dumb and/or blind institute. Please tap someone on the shoulder (that’s the part the arms are attached to)and indicate in your inimatable fashion you wish to be returned to base. It appears you have this self imposed notion you are more knowledgeable than the Govt’s Ministers, The Treasury, The IMF, The Bankers etc.
((((Gary Johnson, I’m sure you are the escapee from the deaf and/or dumb and/or blind institute.)))))
Ouuuch!!!!!..that hurt…but how did you know? Actually, of all the above I am only partially blind or as they say, partially sighted, but that was due to an accident when I was a kid.
((((( It appears you have this self imposed notion you are more knowledgeable than the Govt’s Ministers, The Treasury, The IMF, The Bankers etc.))))
Yawn!!!…you are so fucking boring… and typical of the think-tank, change-agent, agenda driven Looney Left. You’d fit in well at the Age newspaper.