Wayne Swan, with a positive (0.6%) GDP for the June quarter under his belt, heads for London to talk to less successful finance ministers.

The smarter economists are beginning to question whether the number is fair dinkum, a question other finance ministers in London will think but will be too polite to voice. Questions are based in part on export receipts falling less than export receipts, ergo increase in “real” terms. On the same theme, July’s trade figures were far worse, with exports down (even in “real” terms) and imports up. “It’s because Australia is growing faster than other developed nations” is the official line. Neat, isn’t it?

Another query is whether Australia has “borrowed” growth from the near future. The first-home buyers scheme and tax break for small business to invest now have undoubtedly encouraged spending ahead of the timetable that would otherwise have been the case. And no government can afford to keep throwing money at the economy as the balance on the national credit card grows, so before long, less stimulus will be available.

Then there is the waste and mismanagement that was always going to be inevitable with so much money thrown about with such apparent abandon. But any treasury official worth his/her salt would point out that even wasted spending eventually gets spent by someone, thus stimulating the economy.

Despite the longer-term worries about the stimulus spending, there is more evidence today that the stimulus has worked to the extent that it has kept people employed in the present provided by Roy Morgan’s latest unemployment estimate for August. Roy Morgan estimate unemployment in August was 838,000 (7.4%) — significantly higher than the ABS due to a broader definition of the unemployed — but still down on July (7.6%) and June (7.8%).

Ken Henry’s main criticism of the stimulus is the unproductive message it sends to the punters — i.e. all of us voters. A nation cannot consume its way to greatness, and vigorous fiscal handouts plus emergency low interest rates sends exactly that message. Plus, of course, that a generous, caring (Labor) government is there to help when times are tough.

Put another prawn on the Barbie, Bruce, correction Wayne, will be the cheery greeting for Swan in London.

Peter Fray

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