Strange as it may seem, it wasn’t so long ago that the main economic debate in Australia, the key issue separating the Government and the Opposition, was the extent to which the Government’s stimulus package would work.
Despite supporting the initial package, the Opposition quickly tried to move the debate onto a sort of parlour game for Economics Department common rooms, arguing that tax cuts, not handouts, were more likely to be spent, based on obscure theories of personal behaviour.
It looked at the time like a desperate attempt to find a point of difference with the Government, rather than a genuine and significant argument. It also wilfully ignored the fact that a considerable component of the package was an increase in the First Home Owner’s Grant and a further increase for new homes. Month in, month out since then the data have proved the Government — or, more to the point, Treasury, behind whom this Government hides on every major economic decision — correct. The most recent retail sales figures confirm that the handouts are being spent, despite their disastrously non-permanent nature. Today’s building figures confirm that the first home owner’s grant for new homes was a policy masterstroke for propping up construction.
This sort of data suggests the strange debate we had early this year over the spendability of handouts is over. Australia conducted a large, real-world economic experiment, and the results are clear. The Government targeted retail and construction, two of the biggest-employing sectors, and bombed them with cash, and it has worked.
Whether it is enough to stave off recession, technical or otherwise, won’t be known until at least tomorrow. But on the basis of the results it is hard to think what alternative strategy the Government could have pursued to prop up demand and employment that would have worked better.