Ken Henry has taken the smartest option as argument rages about another stimulus package, and gone on holidays. His office today told Crikey he was on leave until next Wednesday.

My estimation of Dr Henry immediately rose when I heard that. Others may not be so kind. Last time he dared to go on holiday, he copped a bollocking from the Coalition for putting the interests of hairy-nosed wombats ahead of that of the economy. He’ll probably cop one again because of this.

While Henry would be just a phone call away, and doubtless has never gone too long without talking with Wayne Swan, his absence suggests either the Government isn’t aiming at a stimulus package early next week or, rather more likely, its broad direction has been finalised and Cabinet will apply the finishing touches on Monday. That Julia Gillard, one of the four members of the Strategic Budget Committee, is enjoying the cold of Switzerland also suggests the Prime Minister and the Treasurer have a fairly good idea what they’ll go for.

Lindsay Tanner, the other member of the quartet, has been in Melbourne, sweating it out along with everyone else, having cunningly planned the relocation of his electorate office for the hottest week of the year. He retreated to Canberra today, where it will be a positively pleasant 38 degrees.

Pedants might object that no package is currently scheduled to be announced, but the Government has deliberately let speculation run and run, and going into Parliament on Tuesday with nothing but assurances that the Government “stands ready to act” would be a peculiar way to start the year.

Based on previous form, the announcement will come around noon on Monday or Tuesday; doing it on Tuesday will enable the Government to give Malcolm Turnbull two hours to respond before heading into Question Time to talk about the need for what will inevitably be described along the lines of a “temporary, targeted deficit that will create long-term jobs and invest in our people and infrastructure.”

Julia Gillard will take pleasure in explaining just how much the government is investing in training compared to the dark days of the Coalition, while Rudd, Swan and Anthony Albanese will be hopping into them about their lack of infrastructure investment. You could write the briefs for Question Time now. In fact, someone almost certainly has.

The following week will be given over to Estimates — bet Henry can’t wait for that — and its accompanying political static. After that, there’s only three sitting weeks until the Budget. You can bet the Prime Minister’s brains trust has mapped out exactly what it wants to do and where it wants to be between now and Budget Night.

Yesterday, the PM met with John Brumby and some bloke who’s acting as NSW Premier until they sort out the mess there. The discussion, the contents of which remain confidential, presumably centred around how to quickly spend the infrastructure component of the package. Meanwhile, Wayne Swan and Malcolm Turnbull duked it out over the stimulatory effect of tax cuts.

Don’t work fast enough, said Swan, citing the IMF. There’s American data that shows it boosts confidence, said Turnbull, declaring Labor “is the party of higher taxes.” That Turnbull, a member of the highest-taxing government in Australian history, said this with a straight face is testament to his powers of self-control.

Turnbull is right, though — tax cuts, if directed at the low-paid, can provide an ongoing stimulus and could play a role in the ever-popular “wage restraint”, to help prevent job losses. Nothing to stop taxpayers going and wasting it on plasmas and pokies, but I’m not yet convinced that sort of stimulus is any different to worthier spending. It’s all cash circulating in the economy. Ah for the days when we knew what was good and bad economics. Warwick McKibbin recommends a temporary cut in the GST rate.

Given deflation is looming as a potential problem, the Government doing itself out of that much money just to encourage shoppers 5% more would appear to be an inordinate waste. Still, McKibbin has never taken the easy route when an immensely complicated route of his own devising was the alternative. He must be a lot of fun at Reserve Bank meetings.

But there’s a real problem, indeed, two problems, for the Government with NSW. It’s now evident, if it wasn’t bloody obvious before, that the NSW Government is dangerously dysfunctional. People’s lives, in the health system it is unable to run, and people’s jobs, in an economy it is mismanaging, are at risk. But the three men running it, Obeid, Tripodi and Robertson, are in effect holding 5 million people hostage. To prevent NSW dragging the rest of us down even further, the Federal Government has to somehow invest in the state, in effect rewarding NSW Labor for its incompetence and self-obsession. That’s the policy problem.

The political trick will be to do so while staying as far away as possible from them. The NSW Government will become more and more like a toxic asset, sitting on the Labor balance sheet, undermining confidence and worrying voters. Some form of intervention by Federal Labor is necessary if it is not to walk into a baseball bat from NSW voters in 2010. Putting the heads of Obeid, Tripodi and Robertson on pikes in Macquarie St would probably be the most effective outcome but assassination remains illegal in NSW, unless perchance the Government repealed the Crimes Act by accident in Parliament one night. Rudd’s only public statement so far is that the NSW Government needs to “radically lift its game.” That seems to assume they’re bothering to play the game, rather than sitting in the dressing sheds plotting to knife each other.

The grim reality — well, the grimmer reality, because there’s no other kind these days — is that no stimulus package, whether it’s crafted by Wayne Swan, Malcolm Turnbull or the ghost of Keynes communicating via a debt-funded Ouija board, is likely to do much to offset the collapse in confidence, credit and trade going on here and overseas. But no government could sit still and refuse to intervene until more propitious times.

Democracies don’t work that way, and perhaps they shouldn’t.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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