With the government’s $42 billion stimulus package now the subject of political squabbling in the Senate, not least of all over Kevin Rudd’s dubious linking of the funds to the Victorian bushfire tragedy, Crikey thought it was time to shift the focus back to the raw economic equation.
Last night, the Standing Committee on Finance and Administration delivered a preliminary report into the package claiming that “without timely implementation of this plan, the Australian economy could stall” with ATO chief Michael D’Ascenzo testifying that if the proposed March and April tax bonuses were delayed they couldn’t be delivered until after tax time in June.
The Greens and Xenophielding are pushing for changes on housing and energy that probably have more to do with protecting special interests than reviving the nation’s flagging economy while Malcolm Turnbull wants a pared-back solution with tax cuts subsuming spending. The Senate is due to vote on the package tomorrow afternoon.
So, should the Senate pass the strategy in its non-amended form or fall in behind something like Turnbull’s chastened proposal? If so; what would that entail? We asked a group of leading economic wise heads for their considered views:
Prof John Quiggin, University of Queensland: The government has the broad direction right and I really think Turnbull’s floundering on this issue. The likelihood is that we’re going to need more rounds of stimulus rather than less in the future and in that context locking in permanent tax cuts is really the worst thing you can do. One minor but important amendment the Senate should consider is the home insulation scheme that needs to be adjusted if the government’s actually serious about reducing carbon emissions. We need a corresponding lowering of the emissions target which is essentially a hand-out to big emitters.
Alan Oster, NAB Chief Economist: No package is perfect. I don’t have a problem with what the government is trying to do. I think they’re basically trying to keep the consumer afloat until they can get on with the infrastructure spend in the middle of the year. I also don’t think that this fiscal package is finished and there’s going to be much more in the next budget. We’re expecting a budget deficit of $50 billion, but based on the current package the government says the deficit will be $35 billion, so I think they’re a long way from finished. Tax cuts have different effects although the “helicopter drop” that the government’s undertaking now will have a temporary effect that’s upfront. The tax cuts’ stimulatory impact will be delayed.
Brian Redican, Senior Economist Macquarie Bank: It’s imperative that the parliament pass the package now — there’s increasing urgency to stimulate household spending as soon as possible. In terms of improvements, there are some arguments floating around that tax cuts could boost confidence, so alongside giving people the money to spend, tax cuts would make them more likely to spend rather than save. But what’s more important is the overall amount and timeliness with which the package is introduced.
Tony Meer, Deutsche Bank Chief Economist: With a budget of incoming expenditure of $300 million, everyone’s got a bias about what the stimulus needs to be used for, but the reality is that there is limited evidence, there is no absolute. The reality is that there’s now a package on the table which involves a significant amount of money going into the economy when we probably need it. We’ve seen ample evidence that the first round of fiscal stimulus worked, including the retail numbers and today’s housing finance numbers. You can pontificate about which individual approach is right but the reality is we’re faced with the most dire global economic environment that anyone currently working has ever seen. The simple fact is that it’s appropriate to be making policy responses against that unprecedented negative trend. It doesn’t matter whether the package is passed this week or next — because one week won’t make any difference. But the reality is we now have a significant package on the table and we’ll see various amendments that will reflect the political bias of the individuals and parties involved. But I would assume that a large majority of the package will be passed as it’s initially been canvassed.
Assoc. Prof. Steve Keen: The short answer is yes, the Senate should pass the stimulus package, but it won’t stop the crisis. There are two reasons for that. One is that the government’s fighting a “great deleveraging”, so the private sector is going to be drastically reducing its debt levels, probably for the next 10 to 15 years. In the Australian case, we’re talking debt levels of about $2 trillion. If the public tries to reduce its debt levels by 5% that’ll strip $100 billion out of the economy. Pouring $42 billion back in is only part of the whole. Secondly, the Japanese tried stimuluating the economy for 15 years and the government’s debt-to-GDP ratio went from 50% to 175% — the economy there is still in a depression. This crisis is too big to fiscally stimulate our way out of. But trying to do that is better than not doing anything and Malcolm Turnbull’s stuff about “maybe half a package is just as good” shows that he still doesn’t get it.