Friday, February 06, 2009

Rudd's Second Economic Stimulus

Prime Minister Kevin Rudd's second economic stimulus package, designed to either stop Australia falling into recession, or minimise its effects and duration, includes:
  • cash handouts to most people, depending on income and whether a tax return was lodged for the 2007-08 financial year.
  • an extra bonus for single-income and low-income families
  • a cash bonus for farmers and small business affected by the drought
  • cash handouts as a "training and learning" bonus
  • infrastructure investment handouts to the states including for building works at "every public school", and public housing at least.
  • $1600 rebate or grant for solar hot water or roof insulation (if there is none)

A big cash injection into the economy will help to kick-start it. The infrastructure spending will be more a sustained release pill for the economy. It seems a good package, although there could be more money for unemployed people and and those on very low incomes. There are tax cuts scheduled for 1-July from last year's budget.

So much for the economic proposal. What about the politics?

Opposition Leader Malcolm Turnbull has derided the cash handouts, instead wanting tax cuts. Tax cuts have a trickle effect, and there is a real risk that some of them would be used to pay down debt, rather than be spent. The Liberal and National Coalition parties voted against the package in the lower house, and have said they will oppose it in the Senate. He might well have chosen tax cuts for a number of reasons:

  • the Costello factor - he's still in Parliament, and still has support as a future Leader. Turnbull might still be wary of a Costello challenge. Indeed, Turnbull might have asked himself 'What would Costello do?' {His imaginary answer from Costello might have been: 'take 2 tax cuts, go away, and see me when the recession's over'}
  • Turnbull's need to be different
  • Tax cuts have previously been politically popular, even though they redistribute more wealth to the wealthy, or at least the better-off

For his part, Kevin Rudd has ensured that tax-payers will be reminded of the injection into schools and other infrastructure when the next election is called. Further, he can paint Turnbull as obstructionist - indeed Rudd said Mr Turnbull should "get out of the road" on multiple occasions during press conferences today.

The economic stimulus might be judged quite economically sound, but the underlying politics by the Government is very clever.