Tuesday, December 09, 2008
Peter Hartcher and Phil Coorey have the story in the SMH.
Treasury thinks we will save the rest and then spend another 30 per cent in the first quarter of next year and then another 30 per cent in the following quarter.
Saul Eslake of the ANZ is skeptical about the saved-up spending:
"Do they think people will save it up and spend it on Easter eggs or something?"
Here's my take in today's Age:
What if we were thrown buckets of money and wouldn't spend it?
It's becoming more likely by the week.
On Wednesday and Thursday an incredible $4 billion of bonus payments will be poured into Australian bank accounts - a record for a 2-day period. By Friday it'll climb to $5 billion and a week later $8.7 billion.
If anything can reignite spending and save us from recession, it ought to be that. Or so it seemed in October.
When Kevin Rudd and Wayne Swan announced the stimulus package 8 weeks ago they were hailed as visionary...
The United States and the International Monetary Fund have a mantra when it comes to stimulus packages - "timely, targeted, and temporary". Rudd and Swan appeared to hit each of those buttons. Within Treasury the buzz-phrase is "go hard, go early and go households". We were going to.
But "timely" and "early" are stretchable concepts. The wheels of Centrelink and parliament grind so slowly that what our leaders regarded as timely on October 14 couldn't be delivered until December 11.
The Treasurer himself seemed locked in a time warp yesterday when he declared (in a contorted mix of tenses) that "the Australian government moved early, well before many other countries moved with a significant fiscal stimulus, and we did it because we were acutely aware of the potential scale of the global inancial crisis, which sadly since the time we announced this package has got considerably worse."
And that's the problem.
Had we got the money at about the time it was promised in October there was a fair chance we would have spent it. The Treasury thought so. It's guess at the time was that in net terms all of it would be spent in Australia.
(Note the use of the phrase "in net terms". Obviously some of the bonus payments would be saved, and some would be spent on imports or overseas travel - perhaps 30 per cent. But of the 70 per cent that was spent in Australia, some would be spent twice. Yes, really. Economics is a funny business. I might spend some of my bonus on someone to mow my lawn who would in turn spend it on someone to cut his hair who might in tern spend some of it somewhere else. This double or triple spending would offset the money that was saved or spent overseas, creating a net boost to the Australian economy from the payments of around 100 per cent).
Or so it was thought then.
A month later the Treasury budget update substituted a lower estimate - somewhere between 50 per cent and 100 per cent. Consumer confidence had plummeted in the meantime. Only a tiny proportion of those answering the Melbourne Institute's survey believed that “now is a good time to buy a major household item”.
Since then private forecasters have revised down further their own guesses as to how much will be spent. Most expect less than 50 per cent. One, who does what want to be named, expects only 10 per cent.
The winner of this year's Nobel Prize for economics Paul Krugman helped make his name analysing the tragedy of prosperous nation whose citizens had decided not to spend more no matter what.
Describing what had happened to Japan in the 1990s as "a scandal, an outrage, a reproach" he said it was a human disaster on a truly heroic scale that a great nation with a stable and effective government was "operating far below its productive capacity simply because its consumers and investors do not spend enough".
His point was that once the psychology has turned, almost nothing - not even interest rates close to zero - will get people spending again. John Maynard Keynes described the phenomenon a"liquidity trap". The US is probably in one now. Australia's chances of avoiding one are receding.
The Treasurer was keen to emphasise Monday that the $8.7 billion in bonuses were "targeted at those that require them the most and are most likely to consume," but that's far from true.
Many pensioners are needy, but not all of them. The biggest game in financial planning is to get well-off retirees a part-pension (just a dollar will do) in order to get the associated concessions. The income of these "pensioners" often far exceeds their needs. But each of them will get the same $1,400 bonus payment for singles and $2,100 payment for couples as full-pensioners on the breadline. These part-time pensioners are better described as investors who have seen the vale of their investments plummet. They are likely to save rather than spend. It's their savings that are in trouble.
The 284,000 Australians living on the less-generous unemployment benefit and those on the disability support benefit will get nothing. Yet according to the Council of Social Service more than half can't afford to pay their electricity bills and a third can't afford visit the dentist. They'd be highly likely to spend anything the government pushed their way. They need to.
The Families Minister Jenny Macklin was flailing yesterday when she said that they wouldn't necessarily miss out. They would if they were single, but they would get the same $1,000 per child as other eligible families if they had children.
This $8.7 billion in bonus payments could have been better targeted, and should have been more timely.
Back in October it was a bold step in the right direction. It's less bold now.
The unfolding story...
THE PRIME Minister and the Treasurer have pleaded with Australians to spend the $8.7 billion in stimulus payments due over the next two weeks as new figures show the jobs market "falling off a cliff".
The ANZ's count of newspaper job advertisements collapsed 12 per cent in November on top of a 12 per cent slide in October - the steepest fall in its 30-year history.
"Job ads are now in the zone last seen during the recessions of the early 1970s and early 1980s," said UBS Australia economist Scott Haslem.
"They have fallen off a cliff. For every 10 jobs advertised a year ago, there now are only six," said Macquarie Bank strategist Rory Robertson .
"Full-time jobs growth has slowed to a crawl. Should it slow further in the figures to be released Thursday it will be an ominous sign of darker times ahead."
Treasurer Wayne Swan urged the millions of Australians due to get the $8.7 billion in bonus payments to spend the money "knowing they are supporting Australian industry and supporting Australian jobs".
"These payments are directly related to the urgent task of supporting employment in our economy because of events which have occurred internationally," he said.
Opposition Leader Malcolm Turnbull dismissed the payments as a "sugar hit," saying the money would be better delivered as tax cuts.
“In a climate like this people are very much inclined to save one-off payments like this,” he told Fairfax Radio. “This is an economic equivalent of a one-off sugar hit.”
"Across the board tax cuts, particularly targeted at lower and middle-income earners would going to have a greater impact. People would see them as being permanent. They will seem them as encouraging people work, to invest, to hire people and so forth,” he said.
Prime Minister Kevin Rudd said he had expected the criticism.
"But if the government doesn’t empower consumers at a time like this in the midst of global financial crisis, then in fact, we will have even greater challenges ahead," he said.
"The government understands that we’ll be criticised for how some of this money is spent, but the alternative is for government to do nothing to stimulate the economy, for government not to invest in jobs, in growth, in families and this government, by contrast, has resolved to act."
An estimated $4 billion of bonus payments will enter the bank accounts of pensioners, carers and eligible parents on Wednesday and Thursday, and an extra $1 billion on Friday. The balance of the $8.7 billion will be delivered next week.
Families Minister Jenny Macklin appealed to eligible Australians to wait until after next Friday December 19 before phoning Centrelink to inquire about missing payments.