Kevin Rudd began the hard sell of his economic stimulus package yesterday by inviting political and business leaders to Canberra over the next few days to work through his timetable. The plan will also face a tricky time through the Senate as Malcolm Turnbull announced that the Coalition will vote against the mix of cash handouts and capital proposals. The Australian Treasury predicts that the $42 billion stimulus package will increase growth by 0.5 per cent this year and 0.75 next year.
The Age’s economic correspondent Peter Martin prefers to call it a mini-budget rather than a stimulus package. Martin says the term mini-budget fell out of favour after it acquired a pejorative meaning and became associated with crisis during the Whitlam government. Malcolm Turnbull has attempted to resurrect the label Whitlamite in his criticism of the proposal. It was a theme picked up by Stephen Mayne in Crikey today (the article is unfortunately behind Crikey’s paywall). He says Rudd is imperilling his government “by embarking on an extraordinarily reckless policy prescription which appears to be motivated by the base political considerations of wedging Malcolm Turnbull.”
Rudd has already been very active in selling (and in the case of his article in The Monthly, pre-selling) his package. He struck a sombre note in his address to the nation yesterday as he offered a “stark choice” for Australia: Act now to reduce the impact on the economy, families and jobs. Or fold your arms and allow the free market to run its course.” But the choices were not as stark as the Prime Minister makes them out to be. And there are worse longer-term problems to face than a recession that might last a year or two. But where was the address to the nation when the Garnaut Report was released? Where was the multi-billion dollar package to do serious R&D into non-carbon based energy solutions?
These are rhetorical questions, of course. Governments are just elected for three years and electability is all about what attractive policies you can place in front of your constituency. Large scale environmental action is not yet considered a compulsory part of nation building. Even the Greens acknowledge this when they say they will work with the government and take a “constructive approach” to the legislation. They warn however, it won’t get a straightforward tick of approval. “It would be abrogating of the Senate's responsibility to taxpayers if it were to pass $42 billion worth of legislation with little more than a day's scrutiny,” said the Greens statement today.
But most of the commentariat seemed to accept the package with reservations. The Sydney Morning Herald’s Peter Hartcher said the state is taking over the task of generating economic growth “while capitalism recuperates”. Michelle Grattan in The Age calls the package ‘a diverse mix of so called "nation-building" and cash tossed out of the cart.’ She also said the new package makes the October $10 billion stimulus look modest. But that did have consumer spending effect. Analysis from Hitwise suggests that the winners from October’s package were those in the electronics sector which saw a huge growth in web traffic in Christmas 2008 compared to a year earlier.
The big winner this time round is the insulation industry. The insulation grant was one of the surprising aspects taking out the 10 percent of the total package ($3.7 billion). While on face value, this sounds an environmental friendly scheme. Joshua Gans finds several flaws with the detail of the proposal. Firstly, he believes that high prices in an uncompetitive market will mean most households will reach the $1,600 cap per home. Secondly, the $200 energy saving per year will be marginal, and thirdly the emissions savings may have the opposite effect of relaxing the Emissions Trading Scheme cap. Because it is policy, Gans writes, the social benefit might not actually be realised if emissions increase elsewhere. “So there is more work to be done here to guarantee that this is a socially effective policy intervention,” he concludes. It is certainly effective for the insulation industry itself. CSR’s share price went up 10 percent overnight as they expect a spike in demand for its Bradford batts business.
One of the few commentators to question the responsibility of the package on consumption grounds was Graham Young (interestingly, an avowed climate change sceptic). At Ambit Gambit, Young argues that the whole economic debate is centred on a number of fallacies. Not only are recession and unemployment unavoidable, but Young also questions whether consumer spending is actually a good thing. Young believes that the era of conspicuous consumption must end and the stimulus package merely continues the binge. “We have larger houses, and they are filled with more and better furniture than ever before, with more and better cars sitting in the driveway for their owners to use when they aren't on holidays,” he said. “The government pretends this can continue when it can't.”
But perhaps Young is wrong about where the money is going. The financial market expects gambling companies to do well from the spree with Tabcorp rising 28c to $4.26 and Crown up 13c to $5.57. No one is quite so prepared to put money on whether Rudd’s own gamble will be successful.