The Reserve Bank has unintentionally entered election campaign, providing backing to a group of 50 of Australia's leading economists in an argument with Opposition Leader Tony Abbott over whether or not stimulus measures boosted growth.
The Bank's August Board minutes, prepared before Monday's release of an open letter from 50 economists supporting the measures, say they have boosted growth for "the past year and a half".
Opposition Leader Tony Abbott last week claimed "the global financial crisis in its most intense phase lasted about eight weeks".
"Stimulus programs such as the Building the Education Revolution program are longer than the First World War," he said. "So why do you need a programme that lasts longer than the First World War to save jobs in a crisis that lasted, in its intense phase, for just eight weeks?"
Former Prime Minister John Howard agreed telling a liberal fund-raiser in Perth he did not "rate the fiscal stimulus at all highly in relation to saving us from the global financial crisis".
"I don't rate it at all. It was over-indulgent, it was way beyond what's necessary," he said.
The Reserve Bank minutes released yesterday say not only that the stimulus measures supported growth over the past 18 months but that their imminent withdrawal poses risks to growth...
"While growth had been boosted by fiscal stimulus over the past year and a half, this would be reversed in the period ahead as public investment declined following the completion of stimulus-related projects," the minutes say, nothing that an offsetting "strengthening in business investment is in prospect".
The minutes back the assertion in the open letter that the stimulus package boosted industry and created thousands of jobs, saving Australia from recession.
Signed by professors including Geoff Harcourt, Peter Kriesler, John Neville, Raja Junankar, Steve Keen, Steven Dowrick and John Quiggin, the letter endorses an assessment by visiting Nobel Prize winning economist Joseph Stiglitz that Australias' stimulus pacakge was "probably, the best designed of any advanced industrial country, both in size and in design, timing and how it was spent".
In a one-person open "response" yesterday University of Technology economics professor Ron Bird said while it could not be denied "that the local stimulus package had some effect" it was dwarfed by the effect of the stimulus packages of other governments, especially China's.
"The position we find ourselves in today is more due to our strong economic position going into the crisis and the massive stimulus packages undertaken by our trading partners," the letter says. "The Government can take little or no credit for either of these, a point it (and our learned academics) conveniently forget."
The Reserve Bank minutes describe an economy vulnerable to the phased withdrawal of stimulus measures noting that while surveys show to be consumers to be confident that is not reflected in spending.
"Liaison with retailers suggested households generally remained cautious in their spending, though a number of firms reported that conditions had improved a little from earlier in the year," the minutes say.
While the labour market is tightening, "other indicators, such as business surveys, suggest businesses in most sectors are not encountering significant difficulty in finding suitable labour".
"Average hours worked have picked up only modestly after falling significantly during late 2008 and early 2009."
A Chamber of Commerce survey released yesterday finds optimism among small businesses "receding" and notes that for the first time in a decade "insufficient demand has overtaken taxes and charges" as the number one constraint affecting small business.
Published in today's SMH and Age
Letter Response to Open Letter_Professor Ron Bird_17 August 2010