Kevin Rudd's $10 billion fiscal expansion package makes some degree of sense as a preemptive way of offsetting the impending effects of a (likely) impending international recession on the Australian economy. This move will complement the recent interest rate cut and the dramatic decline of the Australian dollar as a means of stimulating the economy.
Under flexible exchange rates the main tool for stabilising the economy is monetary policy not fiscal policy. Part of the effect of a fiscal expansion will be to drive up local interest rates which will to some extent undo the welcome monetary relaxation.
The major effect of fiscal policy, in general, is to determine the allocation of resources across the public and private sectors of the economy. But the current expansion is mainly to increase spending by pensioners and families with children which will primarily drive demand which is probably welcome. The doubling of the first home buyer's grant will mainly drive up real estate prices and have a negligble effect benefitting new home buyers.
The search by Labor Party yokels for viable infrastructure projects is deeply troubling. It is partly a search by disgruntled socialists for an alternative to to private enterprise. It is also partly a search by third-rate Labor politicians for opportunities to grand-stand. Governments around Australia are retreating from a past commitment towards thinking rationally about public investments. The $1 billion the Victorian Government is wasting on the Northern Dog - the central Victorian attempt to resolve water resource problems by promoting dubious 'water efficiency improvements' - is an early instance of fiscal stupidity. My fear is that many more stupid projects are in the pipeline.