Saturday, March 07, 2009

IMF says yes

The International Monetary Fund has given the Australian Government the green light to spend even more to fight recession, taking a swipe at the alternative of tax cuts proposed by the Opposition, declaring its effects "not so dramatic".

In a detailed analysis released in Washington overnight IMF staff find that direct government investment of the kind included in the Rudd government's stimulus packages can boost the economy by as much as $3 for every $1 spent.

By contrast income tax cuts of the kind proposed by the Opposition would boost the economy by just 50 cents for each $1 spent.

Direct payments of the kind delivered in December and to be delivered again in April would boost economic activity by about $1 for each $1 spent. Where the payments target low-income earners they can boost the economy by almost $2.

The findings undercut a claim by the Opposition Leader Malcolm Turnbull repeated as recently as this week that his alternative of "bringing forward tax cuts to give incentives" would bring about a greater economic boost...

Whereas Mr Turnbull attacked the government Friday for scattering around money "like confetti, sending out cheques to left, right and centre" and borrowing "$200 billion from our children" the IMF found that Australia was in a better position to stabilise or repay the debt it was running up than any major country other than Chile.

Further isolating the Opposition Leader is an Australian Treasury research paper released this morning finding that Australia's biggest build-up of debt, during the Second World War, was "largely eliminated by the end of the 1970s" suggesting that increases in government debt are generally not left to future generations to repay.

The paper says that when net government debt peaked at 10.4 per cent of GDP in 1985-86 "it took only 3 years to reduce it by around 6 percentage points". The 1995 peak in debt was eliminated within a decade. The Treasury paper comes after the department's head Ken Henry was asked in a Senate hearing how long it would take to repay the $200 billion of debt being run up as a result of the downturn and replied that he didn't know.

The IMF's findings came as Britain cut its cash interest rate to just 0.5 per cent and embarked on a program of quantitative easing of "printing money" valued at A$165 billion over the next 3 months.

It said every country would need to boost its stimulus measures, "given the anticipated weakness in the global economy over the next two years".

The debt carried by the world's 20 biggest economies would grow 14.5 percentage points, with Australia's hitting 7.9 per cent of GDP - by far the lowest in the developed world.

In a further sign that more measures may be needed in Australia the Olivier Job Index fell a seasonally-adjusted 9 per cent in February with just 240,000 jobs advertised that month, down from 317,000 jobs in November.

"Even worse, the first week of February had started with 256,000 job ads and that fell consistently over the four weeks,” said Olivier Recruitment CEO Robert Olivier.