Thursday, February 05, 2009

Stimulating the Economy

Our Government has just proposed its second stimulus package of 42 billion dollars.
The first stimulus package of 10.4 billion dollars was announced last October. It went to pensioners, seniors and carers, to those receiving family assistance (3.9 million children) and those who are first time home purchasers. I was a little miffed as I was 6 months too young to receive the seniors handout.
There is now evidence the economy was stimulated as retail sales rose over 3% in December. I know friends who saved most of their money (about $1,200 each) while knowing at least one elderly lady who bought much needed white goods. There were jokes about the money going into pokies and liquor stores but I guess even these stimulate the economy. Except for the first home buyers (until June 30), this money has now all been distributed.

This second package provides $12.7 billion in one-off bonus payments of up to $950 each for low and middle income earners. (I think I will be included as I put in a tax return last year although I did not end up paying any tax).
$14.7 billion to be invested in school infrastructure and maintenance (About time).
$6.6 billion to increase the national stock of public and community housing by about 20,000.
$3.9 billion to provide free insulation to 2.7 million homes and solar hot water rebates (my home already has both of these).
$890 million to fix regional roads and blackspots, to install railway boom gates and for regional and local government infrastructure.
$2.7 billion small and general business tax break to provide deductions for some equipment purchases

The downside is that the budget will be thrown into a massive deficit but as an economist I know this is what must happen to prevent or reduce a recession. (Australia is not yet in recession but it is a likelihood).

Now the Opposition has opposed the package saying it is too much and irresponsible and our children will be paying for it. It passed the lower house at 5 am this morning but will be delayed in the Senate as the cross-benches (Green and 2 others) have the balance of power.

Some say it will be spent irresponsibly and some will be saved rather than spent.

The Opposition when in Government did maintain good banking regulation which has helped us now. However instead of spending money on schools and other infrastructure it continually gave tax cuts (which is what it proposes now) to improve its image. The bulk of these tax cuts ended up with high income earners and led to irresponsible spending and debts which is part of the problem now. It had very little interest in developing for the future and no interest in fighting climate change.

And guess the occupation of the Leader of the Opposition before he entered parliament. A merchant banker. Nuff said.

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