Review of the Government's Stimulus Package

By Jason Fittler

The market conditions over the past 18 months has made most people acutely aware of the importance which governments play in the net worth of the individuals they govern.

Last week we saw a stimulus package brought out by the Government, a package which was in my humble opinion an attempt by Rudd to stop the country falling into a recession while at the same time buying some votes. This never works, hard times require hard decisions.

To understand my comments today you need to understand the following;

1. Multiplier – for every dollar the government spends this how many dollars that private business spends.
2. Social Infrastructure – spending on social issues such as schools and housing for the low income.
3. Economic Infrastructure – reduces the cost of the private sector doing business and therefore encourages private firms to invest.

The point of a stimulus package is for the government to spend money in such a way that it promotes private enterprise to invest in expanding their operations. This creates jobs, increases exports, this has a multiplier effect. The multiple effect is what will really kick start our economy.

The proposed stimulus package put forward looks to spend 87.5% of the money on social infrastructure, improvements to schools by building new buildings, building new housing commission houses, free ceiling insulation. These are one off spends which will only provide a short term increase in employment. On a side note, Queensland children have close to the worst math scores in the world I doubt a new building will fix this. Perhaps more incentive for teachers would produce a better result.

Next come the bonuses.
These are one off payments to different social groups, the aim is to encourage spending, again another one off hit no multiplier effect. Perhaps sustained tax breaks are a better way to do this.

Finally, Rudd gets serious and looks towards infrastructure, an economic infrastructure, this has a multiplier effect but it such a small part of the package it has little impact.

The net result is a multiplier of around 0.3. This means every $1 spent by the government, will result in private business spending 30c. This is not a good package, sure the government is looking to bring out more spending in the next budget, perhaps this will be on economic infrastructure, but given the size of the deficit they are racking up, perhaps they should  be thriftier.

Ok for those who have read this and are thinking I should put up or shut.

What would I look do.

1. Get rid of payroll tax, this will allow employers to employ more staff.
2. Start building Nuclear power stations, I know this is not popular but if we are to relay on green energy we need to cut back our usage or population.
3. Water infrastructure to aid farming.
4. Better road and highways.
5. Tax breaks for small to medium business.

I will stop there as I suspect I have already used up the $42 Billion.

Until next week.