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Australia's lonely stimulus
IPA REVIEW ARTICLE
Much has been made of the fact that the government has acted to shield the economy from the impact of the crisis. The Rudd government's response to the global financial crisis was to ‘Go early, go hard, go household.' Since September 2008, two stimulus packages worth $52.4 billion have been announced.
It is an open question whether or not activist fiscal policy can operate to prevent economic downturns. What isn't open to debate is that the Australian taxpayer will be paying for the stimulus package for quite some time. While we cannot be sure that the stimulus package went early, it is possible to say whether it went hard. Comparative data put out by the OECD indicates that the Australian stimulus package went very hard by world standards.
As can be seen from the figure, Australian government spending as a proportion of the stimulus package is the highest in the world, while measures likely to provide greater bang for buck-such as tax cuts-are small. That includes the spending on school halls, iPod docks, sheds and the various cash bonuses used to top up credit cards and pay for tattoos, strippers, pokies and plasma televisions.
While there is nothing wrong with these sorts of things, it is not clear the taxpayer should pay for them. It is clear that the government panicked, and not only went in too hard, but it also got the policy mix wrong. The Rudd government has spent too much money on too many projects that will produce too little economic value.