Flaws with Australia’s Economic Stimulus Package

From December 8, 2008 the Australian Rudd Government put forth a $10.4 billion dollar Economic Security Strategy.

According to www.pm.gov.au the spending was broken down as follows:

• $4.8 billion for an immediate down payment on long term pension reform.
• $3.9 billion in support payments for low and middle income families.
• $1.5 billion investment to help first home buyers purchase a home.
• $187 million to create 56,000 new training places in 2008-09.

The overall chief aim was to strengthen the national economy and support Australian households.

I agree with the latter portion of this statement referring to the supporting of Australian households. Considering that the funding was distributed to groups most needy, notably pensioners, lower and middle income families as well as first home buyers.

However it’s the ’strengthen the national economy’ bit that I largely disagree with. If the Rudd Government had intended on boosting consumer spending by pumping 10.4 billion into this market then I’d like to know the logic behind it. In the aftermath of the distribution many retailers were left stumped as to how little effect this had on sales. Most vocal was that of Gerry Harvey, chairman and founder of the Harvey Norman franchise who claimed that this stimulus did very little to boost sales.

I’m not surprised this stimulus didn’t have the desired effect, albeit only a minimal one. Such a stimulus, directed to the debt riddled population would do very little to get these guys spending to give the economy it’s much needed boost. Instead of the funds being spent on a new TV or a wardrobe upgrade, the cash was undoubtedly used to relieve some debilitating debt, paying off bills, the mortgage or the credit card.

It’s an unfortunate case of catch 22 where the people who need the money are the one’s who will spend it in ways which will not benefit the economy. Yet those that are privileged and deemed not needy by the government, are the exact people who would spend any stimulus back into the economy.

It’s easy to see why this path wasn’t taken… give to the rich? That won’t look good, it might work, but definitely won’t look good!

In light of the current $42b package, another thought that’s circulating through my brain is whether the stimulus packages are a result of the governments ‘knee-jerk-response’, something that has cost the country heavily in the past. The need “to do something” seems the main reason for the actions rather than a planned and structured spending process to achieve maximum effect. After all how can anyone ascertain the best way to spend 42 billion in the space of a month? Kevin Rudd himself stated “The most irresponsible thing to do today, with the worst global economic recession since the 1930s staring us in the face, would be to do nothing,”. Is it possibly a sign to show the Australian people that the government is quick to act and really cares in times of crisis. Im not the only one in doubt, with various publications showing little support for the package. For a brief editorial rundown visit OpenPolitik

I’m sceptical but I sincerly hope the next round of stimulus funding addresses the issues at hand, or at least takes note that cashing up the needy may not be the way to go if economic stimulation is the resounding aim.