COVER STORY: CANBERRA OBSERVED: Kevin Rudd's desperate gamble
News Weekly, October 25, 2008
Prime Minister Rudd has told the nation to continue to spend, spend, spend, as if there were no tomorrow.
Kevin Rudd has decided to stake his Government's credibility by directly challenging the economic crisis which has engulfed the world.
After months of languishing amidst reviews and reports and bureaucratic malaise, Mr Rudd appears to have grasped the moment which will define his prime ministership.
Realising that the seminal moment in his term of office has arrived, Mr Rudd has opted to spend the budget surplus early and in large dollops to try and prevent a recession.
And he has declared he is prepared to spend more, hinting the federal budget will go into deficit if necessary to keep the economy buoyant.
In his heart of hearts Mr Rudd probably knows he will fail, because the unfolding global economic crisis has become so great that every nation will be hit.
But he knows also that at least no one will be able to accuse him of not acting sooner to prevent the higher unemployment and insolvencies.
The question is whether Mr Rudd's solution is merely a band-aid which masks the underlying problems that created the current economic catastrophe, or whether it is merely another effort in delaying the inevitable truth that we have been spending way beyond our means for too long.
While commentators and bank economists widely congratulated the Government on encouraging a Christmas spending spree, sober heads must ask if this will be Australia's last merry Christmas for several years.
While Australia is a minnow in the economic tsunami engulfing the world, Mr Rudd has decided he cannot wait until the full effects of the credit meltdown hit Australia.
His legacy as prime minister and the future of his Government depend on how successful the measures he is now taking will be.
First step was the announcement that the Federal Government will give sovereign backing to all deposits in all Australian banks, building societies and credit unions — a potential liability to the nation of $1.2 trillion.
The Government is also backing all overseas borrowings by Australian banks.
But this was quickly followed by a $10.4 billion Economic Security Strategy designed to put a massive cash injection into the economy in the lead-up to Christmas.
More than six million people will receive a Christmas present of at least $1,000 each from the Rudd Government.
Under the package, single pensioners will receive a one-off lump sum payment of $1,400 each, while pensioner couples will receive $2,100.
Families will be eligible for a $1,000-per-child bonus at a total cost of $3.9 billion.
Those on the disability pension, carers, war veterans and self-funded retirees who hold a Senior Health Card will be eligible for the pensioner handout. Those on the dole will miss out.
Not long ago, the Government was trying to rein in spending in order to slay the "inflation dragon", but now it wants all those people to spend it any way they like as soon as they can.
The economic "strategy" behind the spendathon is that, while unemployment queues will grow and people in jobs will cut back on spending, the $10 billion will be given to people the government knows will spend it.
The Government hopes there will be a multiplier effect through the economy, keeping confidence up, people in the retail and hospitality sector in jobs, and cash-flow running through business.
However, it is feared that there will be no long-lasting benefits, because much of the spending will merely continue to suck in imports and add to the nation's groaning current account deficit.
Mr Rudd declared that he wanted to tell the nation how it is, not how he wants it to be.
"My job is to level with the Australian people. I don't intend to gild the lily. There will be tough times ahead," he told the nation during a televised address.
But really telling the nation the truth would have been to explain to the nation that for decades it has been living beyond its means.
It might have been to point out that many folk, with encouragement from the banks, had borrowed too much, had speculated in housing, and had used the value of the family home as a gigantic credit card.
The Prime Minister might have told the people that the result of this profligacy has been a $700 billion net foreign debt bill which has made Australia acutely vulnerable to overseas creditors should the panic worsen.
He might have also told the nation that the mining boom may be coming to an end, and that Australia must change its ways and broaden its economy beyond mining and tourism and foreign students.
Instead, Mr Rudd has told the nation to continue to spend, spend, spend, as if there were no tomorrow.
And the Federal Opposition, spooked by the crisis and trying to maintain a spirit of bipartisanship, has backed the plan.