Could the Stimulus Package Have Saved the Country?

By Davidson, Sinclair | Review - Institute of Public Affairs, December 2009 | Go to article overview
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Could the Stimulus Package Have Saved the Country?


Davidson, Sinclair, Review - Institute of Public Affairs


Sinclair Davidson on why Kevin Rudd's response to the financial crisis was'too early, too large and just wrong'.

Timely, targeted and temporary' is a phrase we have heard a lot over the past eighteen months. 'Go early, go hard, go household' is now being widely credited with having averted an Australian recession. Yet we now hear that some of the stimulus money is being held over to 2011-12 when economic growth is forecast to be quite strong. This makes a mockery of the 'temporary' and 'timely' claims being made.

We know the government went hard on the stimulus; according to the OECD Australia spent nearly five per cent of 2008 GDP in order to avoid a recession. That stimulus consisted of two major packages of $10.4 billion and $42 billion and is being estimated to add one per cent of GDP growth in 2008-09 and one and a half per cent in 2009-10. It is not clear that spending five per cent in order to gain about two and a half per cent is money well spent, but that was the choice made at the time.

The government didn't just go 'household', it also went 'school hall'. Australian schools will almost all have brand new halls; whether they want them or not. The horror stories being published in The Australian on a semiregular basis demonstrate the silliness of this whole proposal. Single-pupil schools have new school halls, schools due for closure have new school halls, while large schools where students cannot fit into existing facilities will get new school halls that remain too small for the student numbers. In short, the government adopted the kind of onesize-fits-all approach where centralised bureaucrats excel so well.

This type of macro-wastage is just the tip of the iceberg. Stories are also beginning to emerge of micro-wastage. Over-charging by contractors will haunt these projects for so time.

A plumber friend of mine has recently tendered for a number of jobs created via the government school hall scheme. Despite having quoted three times his normal price he has won 85 per cent of his tenders.

If all the money is being spent on the halls themselves it is an open question as to who will pay for the water to be actually connected. No doubt, the Commonwealth will try to shift the cost onto the States or even the local school communities. A lot of lamington drives and school fetes are going to be needed to tidy up this mess.

Anyone with the temerity to ask questions or even criticise the spending has been pilloried as being hard-hearted and indifferent to the hundreds of thousands of Australians who would be thrown out of work but for the stimulus. To put that claim into context, even with the stimulus unemployment has increased by 217,900 between February 2008 and September 2009. Yet the government continues to claim it has 'saved' jobs.

The government has identified a new enemy, 'academic economists' - and those who argue against the stimulus package are also labelled 'blackboard economists'. This labelling is by government Senator Doug Cameron who has no tertiary education and qualified as a fitter and turner before becoming a union official. (Not that there is anything wrong with that!) In the government Senators' minority report to the recent Senate inquiry into the stimulus packages we see this astonishing statement

A view was expressed by a minority of academic economists that Governments should do little, if anything, to limit the impact of deep recessions on the economy and workers. [This view] demonstrates the difference between 'blackboard economists' and those economists who have responsibility for fiscal and monetary policy of a real and practical nature.

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