Wall St was down 94 overnight, its biggest fall in a month, while the local market is down 66.
Rudd’s stimulus gets RBA tick of approval
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So, which bright spark in the Coalition thought it was a good idea to support Bob Brown’s inquiry into the Government’s stimulus packages? At best, the Coalition was only ever going to be able to rope in a handful of conservative economists to declare either that the stimulus needed to be immediately withdrawn, or should never have even been implemented in the first place, a position that the Coalition itself doesn’t hold. Ken Henry, apparently an “ambassador” for the Government, despite being appointed and reappointed by the Howard Government as Treasury Secretary, had his appearance, originally scheduled for this afternoon, delayed a week by the Coalition because, they said, Treasury had failed to answer a letter from the Committee chair – Liberal senator Alan Eggleston – asking a number of questions. A peculiar decision, given they could always ask the same questions of Henry himself. Instead, they had Glenn Stevens this morning, offering about as strong an endorsement of the Government’s stimulus strategy as you’re likely to get from the RBA head. Stevens’s opening statement identified four reasons why Australia had performed so much better than virtually everywhere else: a better financial system, supported by the RBA’s efforts to maintain liquidity, and the Government’s bank guarantees; the rapid return of China and other Asian economies to growth; ongoing demand for our dirt, and the capacity to provide significant fiscal and monetary stimulus. Stevens particularly made the point that, while both fiscal and monetary stimulus needed to be reduced “as private demand increases”, the Government had designed its fiscal stimulus to do exactly that. “The peak effect of these measures on the rate of growth of demand has probably already passed. The extent of support will tend to tail off further over the next year.” That’s exactly the argument that Wayne Swan has been making for at least two months, and longer, ever since the fatuous question of when he was going to withdraw the stimulus started being asked. In what will be a particularly unfortunate choice of words for Malcolm Turnbull and Joe Hockey, Stevens said that the expected adjustments of both the fiscal and monetary stimuli (in the latter case, via the movement by the RBA of interest rates “off their current unusually low levels”) “would mean that fiscal and monetary policy would be acting broadly consistently.” Turnbull and Hockey have been reiterating for a fortnight that the Government’s fiscal settings are now at odds with the RBA’s direction of monetary policy, despite the inconvenient failure of the RBA to lift rates. But the pain for the Coalition got worse as Stevens went on. He suggested that Government debt levels will be lower than forecast – which we already knew – and that they “ought to be seen as manageable” and would be envied by other countries. Worse, he explicitly stated that they would not result in any “significant upward pressure on borrowing costs”. That’s two Coalition scare campaigns killed off in the space of a few minutes. The ridiculous nature of the “withdraw the stimulus” debate is shown up by the clear evidence that the Government is indeed withdrawing stimulus as private demand returns, even apart from the scheduled deceleration of the stimulus package. Automatic stabilisers like higher tax revenue and lower-than-forecast unemployment benefits are likely to see significantly lower deficits for 2008-09 and 2009-10. The Government’s efforts to curb general government spending in the next budget will play the same role. While spending directed at the construction sector – which is where the stimulus package is now almost entirely directed – has a larger multiplier in terms of employment, there’s otherwise no difference between a dollar spent as part of “Building the Education Revolution” or a dollar saved by Lindsay Tanner’s razor gang. But if you believed many in the media harping about the stimulus, only dollars with a Julia Gillard picture on them have any impact in the real world. On the weekend, it was the G20 confirming the continuing need for stimulus until private demand returns. That can correctly be dismissed as reflecting the parlous state of many member economies – or even, if you’re Joe Hockey, as a left-wing conspiracy. But now Glenn Stevens has endorsed the Government’s approach. And the Coalition were the ones who invited him to do it. |
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13 Comments
Yet another own-goal.
The libs will give us a scare campaign regardless. It would have been rubbish without these comments, now it will be even more so. But it will happen.
Bernard,
I’m not sure I understand what you mean here:
“The Government’s efforts to curb general government spending in the next budget will play the same role. While spending directed at the construction sector – which is where the stimulus package is now almost entirely directed – has a larger multiplier in terms of employment, there’s otherwise no difference between a dollar spent as part of “Building the Education Revolution” or a dollar saved by Lindsay Tanner’s razor gang.”
Spending cuts will help repair the public finances (realistically by slowing the growth in total expenditure to beneath the growth in revenue, rather than through large absolute cuts). Stimulus spending stimulates (though the construction sector may be a bit over-stimulated in places). But I’m not sure if you mean to equate the two, unless the argument is that a dollar not spent by the Government is a dollar that taxpayers keep and spend themselves, which would seem to be true only if public spending restraint led to lower taxes rather than repaying debt sooner.
Glenn Stevens has run Joe and Malcolm through with a long lance after these comments.
If I recall correctly both Joe & Malcolm were arguing that tax cuts would be the best way to go, rather than one off payments.
It was a silly comment then, and has been highlighted even sillier now.
The conservative side always goes with tax cuts regardless. The last treasurer took company tax windfalls and decided to cut personal income taxes with it. The result was a smaller tax base to work with when company tax receipts went belly up, and he thinks he was a genius….
Will they ever learn?
DannyW - NO but, unfortunately, neither do the electorate. Sooner rather than later, they will vote them back in again, if only because they’ll be doing so well that they’ll think they have become tories.
$82 million used to be alot of money, not for squandering. How many Australians here have received stimulus payments from other countries? Nil? Zip? Zilch?
And still we have no destination on the other side of the chasm for the stimulus caboose #1 and #2 to land after taking a jump into the thin air / religious faith of market based growth economics.
It’s a race against time really - the hurricane in Brisbane or the caboose hitting the bottom. After Gittins recently we can be sure a hurricane will be good for GDP but not so good for wellbeing.
the problem with the handful of ALP Governments we have had is that they have never grasped the basic relationship between taxes and spending. I vividly remember the state that the much maligned Paul Keating left our public services in.
The question for the ALP is, if they had known in January that we would be in this economic position, would they have revised their stimulus? G20 backing is totally irrelevant for Australia in this instance because we are in a far better and vastly different position. Most leaders in the G20, Gordon Brown as an example, are dead men walking and will be voted out.
Turnbull has never ever said to withdraw the stimulus, this is just ALP scare mongering. He is right to suggest that a discussion atleast needs to be had on the pullback of the stimulus. Not to do this, given where we are economically, is irresponsible.
The bank guarantees, whilst required in some capacity, was hastily implemented - just ask Mortgage Funds and the people that lost their jobs due to the millions pulled out by advisors and investors.
Isn’t this stimulus package, which Stevens has strongly endorsed, a loan to the government and, in turn, the people (which we will have to pay back with interest)?
If so, what involvement would the Reserve Bank of Australia and people like Glenn Stevens have in such a loan?
Very little media coverage has been given on the source of the money used for the stimulus package, beyond quotes of Turnbull disapproving of increasing national debt. I’m just wondering if Stevens’ position on this matter is directly related to his involvement and that of the RBA.
Simmobc, one word for your contribution ’ stupidity ’ and that’s being kind mate!!!!
well Raymond, what do you disagree with?
The debate about the stimulus package says more about politics than it does about economics. Both sides of politics are correct - it did stave off a catastrophic collapse in demand and it did increase debt which will need to be payed off by taxpayers. Which is to say, like every action undertaken by any government it had plusses and minuses and pretending that its all good, or all bad, is just partisan noise making. Most individuals seem to be political parties of one on this - if it was good for you then you approve of it (new mortgage, insecure job), if not then you dissapprove of it (established wealth, don’t want to be taxed or inflated).
Even Hockey dont believe what he said, the costello smirk comes out. He knows he is bull shit#ing the public. The Libs are pis#ed off Australia is doing well and would love for Australia to look like the USA or Britain. What is Truffles doing in England ???????? at our expense.
Barry 09 - I think you are taking it a bit too far by thinking the Coalition would love for Australia to be in the same position as the USA or Britain…
It would be responsible to have a discussion on the pullback of the stimulus given the stimulus was largely based on projections which have turned out to be ‘off the mark’ and more recently, the budget bottom line is likely to be $5B better than expected.
Sadly, the discussion will not happen for political reasons alone. It could be said that Swan is now admitting that the stimulus package ‘is over inflated’ because the stimulus package has not changed inline with our current and better than expected, economic condition. The ALP may have cleverly duped the public.
Turnbulls trip to London was privately funded.
Now that Stevens has clearly warned Swan to be vigilant and to not overheat our economy, the true test of the ALP’s economic credentials lay ahead.