February 5th, 2009 at 05:06pm
I have now had some time to give Kevin Rudd’s latest stimulus package some thought and debate its merits and some of my opinions with a few people, and come to some conclusions.
On the whole, I think the stimulus package is good idea and it should work, but there are a couple things which I would change. The main thing which makes the plan a good one is that it throws money at the free market to enable it to do what it does best…decide where money needs to be spent in order to keep itself operating. It would appear to me that the idea behind the package is to make the economy tick over in much the same way that it would if these were normal circumstances.
The focus of the package is both on short term cash injections, and medium term job promotion.
I was very surprised to hear Kevin Rudd reintroduce the “education revolution” phrase with this stimulus package, but if this is what he meant by “education revolution” then I think the idea has merit, even if I wouldn’t personally call it an “education revolution”. Throwing money at schools, to spend on infrastructure is really a plan for the medium term. It basically gives money to schools to then give to private enterprise, so that they can then build various things, and employ labourers to do the work, which in turn assists the industries which supply the construction and maintenance industries by creating more demand for their products.
The same can be said for other infrastructure programs.
The short term cash injections come in the form of payments to individuals with many individuals set to receive $950. The government are asking people to spend that money, but as they are giving out cash payments (or, more likely, deposits in to taxpayers’ bank accounts) it is clear that they understand that not everyone will spend the money straight away, and they are fine with this. If they weren’t fine with it, then they would be giving everyone Visa Debit cards loaded with $950 and a one month time limit, after which the government gets the unused money back and spends it on other stuff.
Personally I won’t be spending the money straight away, simply because my circumstances dictate that my best use of the money is to kill off my existing debt (which I could do with the $950) which would then allow me to save money to put towards domestic travel. I haven’t been able to shake this debt for a very long time, so rather than blowing $950 on stuff that I don’t actually need right now and contending with this debt for the foreseeable future, I would be better off killing my debt now, and spending stimulus package number three (aka the end of financial year tax return) without keeping myself in a debt that I would still have to pay off.
This fits my circumstances, and probably doesn’t fit the circumstances of the majority of people. The bottom line on this is that the stimulus package is designed to support the free market economy, and in a free market, it is up to each individual to spend money as they see fit. Kevin Rudd quite rightly expects that most people will spend their stimulus package…most people will probably see it is a bit of welcome relief…I know that I do, but I probably have a different way of spending it.
I still fit within the spirit in which the money is given, as I am bringing forward the spending of money. Without the stimulus package, I would probably be saving until a bit after my tax return in order to wipe that debt. Instead I will be able to free up that money straight away, clearing a debt from my bank’s ledger, and allowing them to either have less debt, or to reallocate the funds which were leant to me.
The one thing which I do see as a significant problem is the bizarre incentives being given to small business to spend money, in the form of rebates. This doesn’t help NOW, and is hardly likely to make business spend money which they don’t currently have.
I was debating this point with a friend last night and they had the idea of scrapping the personal cash injections in favour of cash injections to small business, on the basis that 80% (a figure which I haven’t had a chance to verify, but sounds about right) of money is spent on business-to-business transactions, and the other 20% is consumer-to-business.
I don’t agree with scrapping the personal cash injections entirely, but what I would suggest is taking the large chunk of money which has been allocated to personal cash injections, combine it with the chunk of money which has been allocated to small business rebates, and split it between cash injections for personal citizens and small businesses. The only condition I would place on this is that the injections for small business would need to be under a time-limited scheme, where the money must be spent, probably within a two month period.
In this way, you would be attacking the slowdown on two fronts, the retail end, and the wholesale/B2B (business to business) end, which I think would be a more effective way of kicking the economy in to gear than only throwing money at the retail end in the short term.
I do have one other minor concern with the package, and that is that, due to the sheer size of it, it’s a one-off stimulus. This can not be repeated. It is therefore a gamble on taking the national budget in to debt, on the basis that whilst we tide ourselves over with a stimulus package, the rest of the world economy will start to recover. It’s a risk, but I think it is worth it. Even if the gamble fails, at least it will help to ensure that our economy doesn’t suffer anywhere near as badly as some overseas will and are.
On the very bright side, the main reason that I believe this will work, is that it flies in the face of Kevin Rudd’s summer holiday essay about ending capitalism. By its very nature, this stimulus package is supporting capitalism and the free market…it says “here’s some money, you know how best to spend it, go forth and do as you see fit”. It doesn’t have any of the bizarre “limit incomes because money shouldn’t go to the people who are in charge” directives that the Obama administration are supporting and is, on the whole, one of the best policies that I have seen from the Rudd government. It’s a tad rough around the edges, but so is every bit of legislation at first. A bit of massaging by the senate and it should be good, as long as the Greens don’t hijack it with their own “but Obama is doing this in the US, we should follow him” agenda.
And on that note, I’m off to Parliament House. There’s senate massaging to watch!