Kevin Rudd gives everyone $950 (Australian Stimulus Package)

[Lusankya]

$42bn package to head off recession

Christian Kerr | February 03, 2009

Article from: The Australian
TREASURER Wayne Swan has unveiled a $42 billion Nation Building and Jobs Plan to cushion the effects of the global economic crisis ahead of a major cut in interest rates expected later this afternoon.


Dire: "The global commodity boom has come to an end," Kevin Rudd said in a joint statement with federal Treasurer Wayne Swan this afternoon. Picture: Gary Ramage

The plan forms a double-pronged, electorally friendly strategy designed to shore up employment in the short term and complement long-term infrastructure development.

But the package cannot prevent a more than $40 billion turnaround in the budget, with a budget deficit of $22.5 billion forecast for this financial year.

Unemployment will also climb from the 4.3 forecast in the budget last year to 5.5 per cent by June this year.

The Government says the initiatives in the package will boost economic growth by around 0.5 per cent of Gross Domestic Product this financial year and between 0.75 and 1 per cent in 2009-10.

“Without this significant and timely policy stimulus, Australia would face a more severe slowdown than forecast,” the Government says.

It estimates the plan will support up to 90,000 jobs over the next two years.

But predictions for employment remain gloomy, with joblessness forecast to rise to seven per cent by June 2010.

“The global commodity boom, which has provided significant stimulus to the Australian economy over recent years, has come to an end,” the Prime Minister and Treasurer said in a statement.

“No country will escape the impact of the global recession which is causing falls in growth, job losses and budget deficits right across the world.

“The weight of the global recession is now bearing down on the Australian economy. Economic growth is slowing and employment will weaken.”

The Government says its response will strike the right balance between supporting growth and jobs now and deliver lasting investments needed to strengthen the economy into the future.

For every dollar spent providing immediate stimulus to the economy now, the Government says it has invested more than two on long-term investments to generate future growth.

As part of its long-term measures, the Government will build or upgrade libraries and halls in every primary school, special school and Kindergarten to Year 12 school across Australia. It will build 500 new science laboratories and language learning centres in schools that can demonstrate need and provide up to $200,000 to every Australian school for maintenance and renewal of school buildings.

The Government will install ceiling installation free of charge in 2.7 million households.

It will build 20,000 new social housing dwellings, fund maintenance to around 2500 vacant social houses and construct 802 new Defence Houses around Australia.

Small business and other general businesses buying eligible assets will benefit from a 30 cent in the dollar investment tax break.

The Government will spend $890 million to fund 350 additional projects under the Black Spot road safety program and the installation of around 200 new boom gates at high risk level crossings, as well as local community infrastructure and maintenance on Australia’s national highway.

The Government hopes a series of five targeted bonuses for low and middle income households will provide an immediate stimulus to the economy and jobs.

The payments are a Tax Bonus for Working Australians of up to $950 for every eligible worker earning $100,000 or less that will support up to 8.7 million people, a $950 Single Income Family Bonus to support 1.5 million families with one main income earner and a $950 Farmers Hardship Bonus for around 21500 drought affected farmers and farm dependent small business owners receiving exceptional circumstances related income support.

Some 2.8 million children will benefit from a $950 Back to School Bonus, while a Training and Learning Bonus will be paid to students and people outside the workforce returning to study to help with the costs of education and training.

The Government says the plan will build on the stimulus measures already in place to support economic activity and jobs.

“The global recession, dramatic slowing in China and unwinding of the commodity boom has now wiped a total of $115 billion from budget revenues and pushed the budget into deficit,” the Prime Minister and Treasurer said.

A budget deficit of $22.5 billion, or 1.9 per cent of GDP, is now forecast for this financial year.

Yet the government says this compares favourably to the seven per cent average for advanced economies forecast by the GDP.

The government says it is taking action to return to surplus by holding real spending growth to two per cent a year and banking any increase in tax receipts associated with the economic recovery, while maintaining its commitment to keep tax as a share of the economy on average below the level it inherited.

But it is also leaving all options open for further action.

“The government will continue to monitor the economy closely and is committed to taking further steps to support growth and jobs if required,” the statement says.

Can anyone with more knowledge in the area comment on whether this is a good idea? Kevin Rudd already gave lots of people $1000 for Christmas, so giving people money seems to be his current MO. The budget deficit isn't too concerning, I wouldn't think, given that we've just come off of about 10 years of surpluses, but I really don't know enough about economics to know whether or not "give everyone money" is the ideal response to a recession.

[Stark]

I've seen reports suggesting that most of the previous 'stimulus' thingo went straight into debts, so I'm not sure if this is as intended.

[J]

Bad, but not as bad as giving it to the banks so they can gamble it away and come begging for more. The problem right now is people have woken up to the fact we're in a recession and more importantly, there's a broad shift towards saving rather than spending so the stimulus money ends up being stashed in the figurative mattress or used to pay down bills & debts. The money doesn't circulate back into the economy to fuel consumption & production, so the stimulus package, isn't.

With regards to the deficit, since little of the stimulus money will actually work its way back into the economy to create growth, the government has in effect taken on ~$40 billion in debt. But here's the disastrous part. The government has lost a full third of its tax revenues (going by CIA factbook numbers) which is going to leave one heck of a hole in the budget, and to that you're going to add the cost of the stimulus package. Australia's in a good position for now thanks to a paid off national debt, but a few years of this and you're going to have a sizable national debt and all the joys which go along with it.

[General Zod]

Isn't this the same kind of thing that the Bush administration tried pulling last year with its economic bribery stimulus plan?

[mr friendly guy]

Well I don't qualify for it, so its not going to affect me anyway. On another note this year I seem to be doing my patriotic duty and spending more. Too bad most of it goes here

[Gandalf]

So I just get some more money back in my tax return, or have I misinterpreted it?

[Lusankya]

I'm not sure. It seems to be some kind of lump sum that the eligible people will receive by April. It's possibly similar to the baby bonus, except for everyone.

[weemadando]

OK, it's a lump sum payment to be paid via the ATO (not Centrelink for once - fucking HOORAY) to all eligible Australians. It will be paid in late March or April via the last method of refund payment recorded by the ATO.

What I'm fucking shocked about is that finally I get something from the gov't - 950 free dollars. Not sure what I'll do (service debt maybe?) but goddamn is it ever nice to actually get something for once.

[Twoyboy]

Yeah, $950 per person/family isn't going to do that much, but they also announced a crap load of infrastructure and education and training projects to go with it. If you're going to send your budget into deficit, the time to do it is when these sorts of things are cheap (because there's no other demand) and you desperately need things done because the last government was so adamant on running a massive fucking surplus they forgot we actually want stuff in return for our taxes... like roads and things.

I've seen reports suggesting that most of the previous 'stimulus' thingo went straight into debts, so I'm not sure if this is as intended.

I heard an economist on the radio (which makes me an expert by-proxy ) saying we haven't seen the full extent of that package because it went into paying off debt, which people will soon rack up again. Never underestimate the predictability of human stupidity.



On a plus note, we repackaged our mortgage yesterday. That change, plus the rate cut is going to save us like $450 a month. And Rudd's giving us $950. And I sold a whole bunch of stuff on eBay recently. At this rate, we'll have my wife's medical bills paid off by around 2010...

[Darth Fanboy]

Giving all Aussies $950? This is nothing more than a thinly veiled bailout of the beer industry.

[Count Chocula]

$40 billion Australian for a bailout is controversial? You guys are pikers.

[aerius]

As a percentage of GDP it's equal to around a $300 billion bailout package for the US.
It's not exactly chump change.

[weemadando]

Yeah, $950 per person/family isn't going to do that much,

Actually it's $950 for each income earner, there'd be an extra $950 for any child that you receive FTB for and a further $950 should that child be in education (IIRC). So it'll actually be a fairly nice payday for a lot of families.

[thejester]

Whilst part of me says I should save this...I think I'll do the patriotic thing and go buy an enormous TV instead.

Anyone catch his address to the nation on TV last night? His feathers have clearly been ruffled by the whole thing.

[Stargate Nerd]

Time to get that Playstation 3 mates.

[Archaic`]

I've seen reports suggesting that most of the previous 'stimulus' thingo went straight into debts, so I'm not sure if this is as intended.

A fairly significant percentage of it went into the poker machines as well, sadly enough. IIRC, it worked out to about 7% of the stimulus last time.

[Surlethe]

Bad, but not as bad as giving it to the banks so they can gamble it away and come begging for more. The problem right now is people have woken up to the fact we're in a recession and more importantly, there's a broad shift towards saving rather than spending so the stimulus money ends up being stashed in the figurative mattress or used to pay down bills & debts. The money doesn't circulate back into the economy to fuel consumption & production, so the stimulus package, isn't.

This is a form of that Keynesian stimulus multiplier we were talking about in that other thread. You can't really make this broad claim without numbers & studies to back up that the multiplier is actually less than 1; do you have any links?

[J]

This is a form of that Keynesian stimulus multiplier we were talking about in that other thread. You can't really make this broad claim without numbers & studies to back up that the multiplier is actually less than 1; do you have any links?

I'd argue that the Keynesian model of monetary & economic theory is broken anyway, and there are better methods to model where we are and how we got here. The Keynesian model assumes a fiat money system, while in reality we have a credit-money system with a subserviant fiat money component.

For instance
Bailing out the Titanic with a Thimble (PDF file)

This is simplified & expanded upon with more charts in
The Roving Cavaliers of Credit

I also note that the personal savings rate in the US is now positive for the first time in a while, and the big spike to 4.8% last May corresponded with the mailing of stimulus checks and income tax refunds.

[GuppyShark]

Coalition to vote against stimulus plan.

They must be popping champagne bottles in the Labour cabinet room right about now.

[Lusankya]

I'm not so sure. Now the government has to get the minor parties to agree in the Senate. And I think that the government's pissed them off by trying to get them to pass it within 24 hours, so now they're asking for a Senate Inquiry. The Greens will probably side with Labor if push comes to shove, but Fielding and Xenophon are probably more sympathetic to the Coalition than Labor (Xenophon on economic matters and Fielding in general), so the government probably won't get the package it wants. Especially with a significant amount of the December package going to pokies, Xenophon is extremely likely to be opposed to the lump sum payment aspect of the plan.

I guess we'll see how it turns out next week.

[GuppyShark]

It'd be really painful if it doesn't go through. Labour has been promoting it as a fait accompli. I have already had to caution my colleagues not to rush out and spend it before the bill has even passed...

[mr friendly guy]

Didn't Turnbull agree to these type stimulus packages in principle last time? So why oppose this one since he apparently subscribes to the same philosophy. Especially funny is that he prefers the government to give tax cuts all round. And now I see in the Australian paper some people echoing that line of thought.

Can someone explain to me whats the difference between the government giving you the money in the form of a tax cut or a cheque, except for the fact that you get a cheque earlier (ie in April, while tax cuts won't appear until you do your tax return, which is July in Australia).

Turnbull mutters something about how tax cuts will last longer (ie give the tax cuts for the next year and the next) while criticising the government for blowing a hole in the budget. He can't have it both ways, since tax cuts would also do the same to the budget, and if it keeps on going (ie it would be politically disastrous for a party to increase taxes) it will continue to blow a hole in future budgets, while stimulus packages will cease doing that the moment the government decides we don't need another one.

I see Turnbull is making his move to distinguish himself from Rudd. However he may have over extended himself, since I don't need to run a poll to tell you giving free money to lower income earners would be popular. I predict the ALP laying the blame at Turnbull and turning up the heat, with Turnbull backing down, like he did in the first stimulus package, like how he backed down on the GST on fuel excise issue, like he back down on.... well you get the picture.

Back to the actual policy itself, my dad tells me the 100 k refers to your taxable income (ie salary - deductions), and not your actual salary. So checking my 2007-08 tax return, due to an awesome accountant who also doubles as my badminton partner I managed to have a taxable income below the 100 k mark. If they send me a cheque I will eat my metaphorical hat and blow it off at the casino. Hey, its spending it, and if I win more than I lose its not my fault.

[mr friendly guy]

Turnbull's own words

Turnbull defends decision to block stimulus

Federal Opposition Leader Malcolm Turnbull has defended his decision to vote against the Government's $42 billion economic stimulus package.

The Government is planning a raft of cash payments, tax breaks and infrastructure spending to boost the economy.

Prime Minister Kevin Rudd has attacked the Opposition's decision to vote against the measures.

In an address to the nation, Mr Turnbull says he knows it is not a popular move, but it is the right thing to do.

"The Prime Minister has given the Parliament only 48 hours to consider and approve the expenditure of $42 billion," he said.

"That isn't sensible, or prudent. It's an insult to Australian taxpayers and we in the Opposition will vote against this package.

"We know this won't be popular with many people but we are determined to do the right thing for Australia and its future.

"Somebody has to stand up for strong financial management. Somebody has to stand up for taxpayers. Somebody has to stand up for future generations.

"We don't reject the need for a stimulus at this time but our judgment is that $42 billion is too much right now and $200 billion is too much debt. This is not a time for panic. It's a time for sound, calm judgement.

"There's no evidence that last year's $10 billion cash handout was an effective economic stimulus. It did not create the jobs the Government said it would.

"So we oppose rushing to another cash splash. Rather, we propose bring forwarding permanent tax cuts for Australians. This will make many families more than $1700 better off over the year. It allows them to keep more of their own hard earned cash into the future.

"He's [Kevin Rudd] asking Parliament to increase our national debt to $200 billion - a level never seen before. That is $9500 of debt for every Australian, a debt our children will have to pay off years into the future."

Earlier today Mr Rudd branded Mr Turnbull's decision to block the package as "rank political expediency".

"What you have embarked upon today is to vote against the biggest building program in every primary school in the nation," he said during Question Time.

On another note, as we all most probably know, the Reserve bank is continually cutting interest rates. I read in the Australian a Perth couple who already want to use their equity and the fact they pay less interest to buy a second property as an investment. This is one of the reasons house prices went up. I can only hope that the government's stimulus to build more homes, gets passed even if the opposition disagrees with the other measures. At least with new homes, it will ease the rent market leading to less incentive to buy an investment home, and thus puts downward pressure on housing prices.

Decent homes at going at 400-500 K, and IIRC from J traditionally house prices are about 3-3.5 times the total income. Unless the average Australian family is magically earning >150 K per annum, house prices have become inflated. Its time for it to go down, and the Rudd government can start by cutting the first home buyers grant back to pre stimulus levels.

[JointStrikeFighter]

One might think if it's a tax cut it will be a gift that keeps on giving.

[weemadando]

You know - I think I'd rather not have 950 bucks in my pocket and the country NOT be forced into deficit for 4 years off the back of this plan...