CANBERRA OBSERVED: by national correspondentNews Weekly
Assessing Rudd's stimulus package
, September 19, 2009
It is difficult to dispute the Rudd Government's claims that its acceptance of Treasury advice late last year to "go early, go hard and go household" achieved the intended result.
Australia has - at least temporarily - escaped the worst of the global financial calamity including the bank collapses which occurred overseas, specifically avoiding the downward spiral of confidence which might have caused people to abruptly stop spending.
Job losses are continuing to occur across the country (about 12,000 a month), but the trend appears to be muted compared with the United States where unemployment is now approaching 10 per cent.
There is considerable debate about whether the avoidance of a recession was due to the unprecedented cut in interest rates by the Reserve Bank, or Kevin Rudd's $21.5 billion in cash handouts, first home-owners' grants and school-building projects, or a combination of both.
And the Opposition is right to stake its claim that the elimination of government debt by the Howard Government and the well-regulated banking system which was in place before the crisis were major contributing factors in avoiding disaster.
Australia's banking system was never in the same parlous situation as Britain or the US where regulators permitted open-slather borrowing.
At the same time, Australia's links with international markets and our dependence on foreign cash and investment meant there was always the potential danger of being dragged down by the global nature of the crisis.
The question now facing the Government is when to ease back and, even more problematic, how to pay for the biggest economic stimulus package in the nation's history.
Opposition leader Malcolm Turnbull and shadow treasurer Joe Hockey say the brake needs to be applied now to avoid further pain and higher interest rates. However, the Government is resisting this counsel.
The after-party bill could be anything up to $300 billion, although Treasurer Wayne Swan is likely to revise this down in the light of better-than-expected revenue and outlay figures.
Instead of contracting, Australia is actually continuing to grow, according to the Australian Bureau of Statistics.
So successful has the Treasury's sudden rediscovery of Keynesian-style pump-priming economics been, that there are now blunt warnings from the RBA that official interest rates are set to rise from their "emergency" low current settings.
In reality, it is difficult to stop the stimulus anyway.
The bonus payments have already been spent, and the first home-owner grant is due to be halved from the end of this month and wound down further at the end of the year.
Julia Gillard's school program has been exposed as an enormously expensive exercise which has also blown out in costs by about $1.5 billion.
Mr Turnbull calls the "Primary Schools for the 21st Century" program the "Julia Gillard Memorial Library Program", and the Auditor-General is investigating exactly how the $12.4 billion was spent.
Despite Opposition claims of mismanagement of the program, the national schools upgrade will do more to ensure the re-election of the Rudd Government than any other single program.
Each primary school received somewhere from a few hundred thousand dollars to up to $3 million for new classrooms, multi-purpose halls, libraries and gymnasiums.
In some cases, the value of the new building is likely to exceed that of the current assets.
But the Government is unlikely to touch this enormously popular measure because people see a tangible result of taxpayers' money boosting local economies as well as improving school facilities.
The unfortunate truth is Australia has the same problems coming out of the economic crisis as it had going into it.
This includes a massive net national private sector debt, highly indebted households, and a thin economy which depends on foreigners taking our resources, sending their children to our universities and visiting the country as tourists.
All that has been done so far is to stave off the necessary adjustments that households must make to de-leverage and that government must make to get its budget back in order.
On the other hand, it has bought Kevin Rudd a lot of time, because the recovery, even if it is real, will be long and slow and painful.