Getting and staying ahead of the curve has been the Government’s goal in dealing with the financial crisis. The Reserve Bank went hard with a 1% interest rate cut and Rudd short-circuited the emerging debate about bank guarantees on Sunday. The Government’s fiscal stimulus package — or snappily-named Economic Security Strategy – reflects the same desire for pre-emption.
Some thought low interest rates and profligate government spending were what got the world into the financial crisis. Turns out they’re apparently the solution, at least in Australia. Not so much to the financial crisis, though, but the economic crisis which is following hot on its heels.
Over the weekend, the Government presumably received some fairly alarming advice on the extent of the slowdown likely to be occasioned by the meltdown — enough for the Prime Minister to pointedly say at his Sunday press conference that unemployment would be worse than the IMF’s projection of 4.8% in 2009.
How should we judge the stimulus package? Well, you’ve probably got to go back a step and ask what the purpose of the surplus was.
Rudd is now saying the point of the surplus was to provide a buffer for the future. Well, hitherto the point of the surplus had been to curb growth in government spending and invest in infrastructure, health and education rather than Howard-style handouts.
Rudd was still hammering the nation-building theme yesterday and Question Time only started to get some of its usual bite when Rudd was asked about spending the surplus on tax cuts by Julie Bishop.
The problem with the opposition’s position on this is that they assume that there is something inherently wrong with nation building. Well, that is the actual inference of the opposition Treasury spokesman’s question. Otherwise, why would she ask it and why would those in the Senate be seeking to block the passage of the relevant legislation? It is because, in their heart of hearts, they actually do not believe in nation building.
Problem is, ramping up nation building will mean the economy gets a decent kick along sometime in 2010 — unless “nation-building” means employing people to give the sidewalks a lick of paint. By 2010 half of us might be train-hopping hobos.
Accordingly, today’s $10.4b package is all one-off stimulus and no infrastructure, except of the human capital type in the doubling of training places to address the over-subscription of places funded from this year’s budget.
By the time the numbers come in for 2008-09 in September next year, it looks like there won’t be much change from $10.4b in the surplus. For the time being, the Government can keep alive the notion that there is enough money left in the surplus for the infrastructure, health and education funds, but expect that to be blown away in the mid-year economic forecast due in December. The Rudd dream of nation-building is over, for the rest of this term at least and probably for a while after that.