Wednesday, February 04, 2009

Turnbull opposes Labor $42 billion package

I am sympathetic to Malcolm Turnbull's rejection of the Rudd stimulus package and to his proposed more modest alternative of bringing tax cuts forward. I think the recession does have a long way to go and that disposing of all available fiscal ammunition immediately is unwise - a conservative package of something less than half Labor's proposal makes more sense. Indeed Labor's moves show all the signs of panic as well as a simple-minded socialist justification for increasing the role of the state in the economy. Sound extreme? Rudd this afternoon was attacking Turnbull for not rebuilding schools. Rudd is a hypocrite and a liar. This was never the justification for the spending.

I don't want a repeat of the previous Labor Government's record $96 billion public debt that took 10 years to wind down. The Coalition's proposed job subsidies - by subsidising the superannuation costs of small firms for 2 years - makes sense. They are direct policies and directly address the excess supply of Labor.

The employment effects of Labor's package are, on the other hand, derisively small (70,000) and incredibly expensive (nearly $500,000 per saved job). The implied addition to debt is, however, huge. Is it foolish to be risk-averse in relation to this package. The debt will definitely arrive.

Rudd's immediate and insulting rejection of Turnbull's counter-package shows Australia what type of man Rudd is. His populism is obscene. Why no counterarguments Kevin? What not a willingness to discuss the issues? A $42 billion package without intellectual or other justification beyond 'let'd do something and let's make it big' and Rudd demands immediate acceptance without debate of a dubious package.

I am pleased too that Turnbull is displaying political courage despite the short-term flack his move is bound to have. The Coalition should have stuck to its guns in suppporting WorkChoices in the face of the job-destroying policies of Labor. It is inevitable that the Australian economy is in for a difficult few years - hundreds of thousands will have their lives damaged as they lose their jobs. We will all face much higher taxes to repay Labor's debt which, at current rates of growth, will amount to $200 billion or $9,500 per person within a few years.

Even if Turnbull cannot attract the votes of minor parties in the Senate to force a change it makes sense for Turnbull to stick to conservative principles as the ensuing recession and failed policy responses bury the Labor Party. Turnbull is doing his job as an opposition leader and a fiscal expansion of the type proposed by Rudd deserves scrutiny. He can't demand uncritical acceptance on the grounds of 'obviousness' or of 'crisis'.

The moronic left at LP debunk Turnbull not because of any perceived deficiency in his package but because voters will hammer him for not awarding them another handout. I don't think voters are as stupid as this lot - some will realise that they are paying for the handout now and in the future.

Update: Mark Crosby - level-headed macroeconomist newly arrived at CoreEcon - supports my skepticism toward the Rudd package. He also shares the Turnbull concern with the massive emerging debt that we know will stem from the Rudd package.

25 comments:

jc said...

harry

There will be more soup kitchens by the end of this year.

Australia has one of the highest rates of consumer debt in the world, so we can't afford any slow down in the economy and we certainly can't afford any policy mistakes like Kevin Bonhoeffer-Rudd and Swan-Dive are making.

If we get to 10% unemployment which we will with their job destroying policies you may as well hire more wheel barrows to pick up the dead consumers piling up on the side of the road as it will get really ugly.

These idiots have no idea.

Turnbull is ineffective and Julie Bishop is out of her league.

The right team is Costello as the top and Turnbull as treasurer with a promise of a swap in 5 years which this time will be kept.

hc said...

I don't think Turnbull is doing too bad. He is miles smarter than Rudd and has more strength than Costello. But a Costello/Turnbull team wouldn't be bad.

I think now Turnbull should be supported - its the best chance of getting rid of Labor as the recession deepens.

jc said...

Here's the problem as I see it harry.

Bonhoeffer_rudd has put himself in a fairly good political position. He can now say he's thrown the kitchen sink at the problem.

1. if it fails he says he's done what he could and despite making things worse the punter won't be able to work it out

2. if the economy turns around he claims the credit.

The problem for the coalition is that Turnbull doesn't seem to me to taking up to these idiots and getting the flame thrower out .

And Bishop shouldn’t be in that job.

I saw Turnbull on 7.30 and watched Costello on lateline. Costello seemed far more impressive to me although Turnbull had to face labor’s ABC and taxpayer representative through the questions.

Now the problem for Turnbull is that he doesn’t win with either of the two possibilities. If it fails, as indeed it will, it will simply be blamed on the global crisis.

hc said...

I think Julie is better suited to other portfolios. I think Turnbull is persistent and steady. He is quick on his feet. I am not sure that you want to act as a flame-thrower here.

Rudd has a brittleness and insincerity that Turnbull can exploit and Turnbull is getting into his strides.

Rudd will try to blame the international economy - he is partly right - but if things don't improve and deficits grow as debt mounts up his shallowness will become much clearer.

BTW I am not dismissing Costello. He is a talented man and obviously a much more capable Treasurer than the idiot Swan. But give Turnbull a go.

jc said...

Fair enough harry. Yea you're probably right. I'm just in a really dark mood about all this at the moment as i can't believe they destroying, or on that way to ruining one of the economic marvels of the last 13 odd years. This place really kicked arse in all sorts of ways that people don't really understand. I has by far the lifestyle choices compared to anywhere and you really began to see the lower and middle classes doing well under the Libs.

I just can't believe we threw them out.

You know we were 5th or something in world GDP per cap league tables. Sure, some of that was the boom, however not all of it was.

I really can't believe we threw those guys out for this lot.

Perhaps you're right about Turnbull.. I don't really mind him, but we jsut need to et these idiots out of there.

Spiros said...

Harry, you are kidding yourself. Turnbull wants to spend $25 billion rather than $42 billion. There's no great principle involved. With Turnbull, there never is. As his performance on the 7.30 Report made clear, Turnbull's just grandstanding because he can't stand to think that an important decision is being made that doesn't involve him, preferably as the principle decision maker.

The voters are already suspicious of Turnbull's gigantic ego. Now that he's using it to stop the government dealing with the crisis, not to mention them getting their $950 and their free yellow batts, they will turn on him with a vengeance.

If you don't believe me, read the editorials in today's Murdoch tabloids. They usually have a pretty good feel for what ordinary people are thinking.

hc said...

You are not doing good government a service with this line Spiros. It is important for an opposition to take care with a measure of this magnitude. Nothing wrong with nuance.

No difference between $25 and $42 billion? Sorry, there is. A huge difference.

Finally, if you include in the "Murdoch tabloids" The Australian your claims are false. They were not diwsmissive vof Turnbull's suggestions but very critical of your sort of position.

You see the appeal of the Rudd measure as its handout appeal. You criticised John Howard for this now, hypocritically, you see Rudd as smart doing the same.

Spiros said...

"$25 and $42 billion? Sorry, there is. A huge difference."

Let's see. GDP is $1.1 trillion. The spending package is over two years. So the difference is seven tenths of one per cent of GDP.


Harry, the Australian is many things, but it is not a tabloid, and it has zero feel for the average voter.

hc said...

I disagree with the sorts of arguments along the lines that such an expenditure item is small "because it is only 1% of GDP". To be clear 1% of GDP is a huge amount.

$17b would come pretty close to funding the public hospital sustem for a year!

ovenaryo said...

"$17b would come pretty close to funding the public hospital sustem for a year!"

Unfortunately not. The NSW health system alone costs $13b per year.

$17b is $800 per person spread over two years. It's chicken feed.

Anonymous said...

Harry, as you've pointed out you are no macro economist.

I'm no fan of Kevin Rudd but the way I see it is this package is business as usual for Commonwealth Governments over the last 10 years who have been spending like drunken sailors.

If anything the spending is more justified now we've enetered bust than the boom times we recently experienced.

Fortunately the boom time means we have no net debt so I wouldnt be getting to concerned about running a few years of deficits and issuing some bonds.

Its private citizens and corporated that need to pay down some debt and delevarge a bit not the govt.

Nick I

jc said...

Spiros:

Is being a hypocrite a requirement for lefties? I mean this seriously as it looks like that part of the brain simply doesn't function properly.

You were on this and other sites whining about Howard's spending and now you're defending $42 billion.

The Wall Street Journal:

The Wall Street Journal Asia on Rudd’s package:

LOCAL governments will see $500 million to “support large strategic projects” including “town halls, community centres and sport and recreation facilities”. Presumably this is so all the newly unemployed can meet and reminisce about the times when they used to have jobs.


lol

The $25 billion package also includes tax cuts and such things like accelerated depreciation allowances. The makeup of the package Turnbull presented is overall positive and meant to start up the economy.

Rudd's is an intellectual whore house .

jc said...

This is truly amazing. Swan-Dive can't even count, Spiros. Your hero is basically innumerate.


$2.42bn 'typo' reason for scrutiny of Rudd Government's stimulus package


http://www.theaustralian.news.com.au/story/0,25197,25010793-12377,00.html

Spiros said...

Responding to your own posts again, JC?

jc said...

No Spiros, why on earth would you say that seeing you responded.

The piece in the Oz that basically suggests your hero can't even count.....even with the help of a calculator. FOTFL

Swan Dive made an error of $2.4 billion. But as Spiros says:

"$25 and $42 billion? Sorry, there is. A huge difference

I guess by your standards of " numeracy" 2.4 billion is a drop in the ocean. LOL.

Spiros said...

"$25 and $42 billion? Sorry, there is. A huge difference"

It was Harry who said that. Try reading for comprehension. Even better, try reading.

By the way JC, it appears that the pre-Christmas package worked exactly as intended, with retail sales 5.6 per cent higher than the previous December.

http://petermartin.blogspot.com/2009/02/stimulus-packages-stimulate-spending.html

You owe Swan an apology. Of course you won't be gracious enough to make one, but you really should quit while you're behind.

jc said...

It was Harry who said that. Try reading for comprehension. Even better, try reading.

err I know Spiros, Harry was making fun of your innumerate excuse, dumphy.

So if sales were terrific, why did we lose a record 42,000 jobs last month, mr. Macro Economist. And if things were so healthy why the need for 42 billion in spending?

Spiros, if I were you i would be worrying about the additions in the new proposal.


When you have Bob Brown picking you up on $2.4 billion "typos" you know you have a problem with the dude sitting in that seat.

Spiros said...

"So if sales were terrific, why did we lose a record 42,000 jobs last month"

We didn't. Seasonally adjusted employment fell by 1,200. Trend employment rose by 2000.

It was full time employment that fell by 40000 (actually 43900), but made up by an almost equal sized rise in part-time employment.


http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6202.0


The economy hasn't fallen into a hole yet, thanks to the pre Christmas package. But things have gotten much worse very quickly around the world and we will fall into a big hole without the fiscal package announced this week.

jc said...

Spiros:

We lost 40,000 full time jobs. That’s huge no matter how you cut the lard. There’s nothing rosy in that picture.

Let's try to have a serious conversation for second with you being less tribal. I don't support the liberals per say as I'm a member of the LDP.

There’s next to no evidence of a spending program ever working to assist the economy. It really doesn’t work. Britain in the 70’s, Japan in the 90’s.

What does seem to alleviate the problem somewhat are permanent tax cuts directed in areas that help boost employment. Why not cut payroll tax at state level and have the Feds redirect the loss of funding to the states from there. It would really help, as payroll taxes are a dead weight in terms of supporting further hiring amount to a material sum of money.

Think of it this way if the economic engine is spluttering spending 2% annualized as an economic stimulus is a drop in the bucket when you see stats of building approvals down 30% and car sales down 18-20%.

Let the deficit rise as a result of the automatic stabilizers and making it easier for the unemployed to get the dole and don’t whatever you do restrict the labor markets from clearing by making laws that would do so. Eliminate the minimum wage as an immediate measure.

And whatever you do let the market clear out the bas investments and don’t get in the way.

If you really want to solve the problem once and for all, eliminate the corporate tax rate and freeze spending at nominal levels for a decade. That way the economy would be getting back to full employment in 24 months.



Spending is just going to make things worse.

Spiros said...

JC, OK, let's have a serious conversation

"There’s next to no evidence of a spending program ever working to assist the economy."

That statement is far too general.
If you've got huge debt to begin with, then spending s lot more might not work. But Australia has no public debt.

The $950 of course is not spending. It's the same as a one off tax cut.


"Why not cut payroll tax at state level and have the Feds redirect the loss of funding to the states from there."

You could do that. But that just makes the states even more dependent on handouts from the feds. And it increases public debt just as much as spending. Harry's complaint is not the composition of the package, but its size.

Spiros said...

JC, it comes down to this. You say that fiscal stimuli don't work. But most economists, who are trained in these matters, support what the government is doing (as most economists overseas support the same measures proposed by governments everywhere.)

Harry is an economist who doesn't support the government, but on his own admission he is not a macroeconomist. Which is why I'm very happy to listen to Harry in areas where he clearly knows what he is talking about, like water pricing, but on this occasion it's his political prejudices not his professional expertise that are driving his opinions.

And Harry's political prejudices are worth no more or less than yours or Corey Worthington's or Shane Warne's or Con the Fruiter's.

Or mine.

jc said...

Well, I didn’t exactly say fiscal stimulus doesn’t work and if I gave that impression I’m sorry. I have no issue with the budget position going into deficit in a recession as it should seeing that’s how automatic stabilizers are supposed to act in times like this. However that’s altogether different from a huge spending program

In fact one of the reasons the Hoover recession became a depression is that they mistakenly tightened the budget thinking a deficit would make things worse. Having said that I really can’t see the economic benefits of spending $42 billion to create 90,000 jobs. A cost benefits analysis would demonstrate how silly that is. What you want to do is go the extra yard to ensure there are even less impediments which is the job creation machine of the private sector. Lowering imposts that raise the cost of hiring would help a lot.

But leave the asset markets alone to find the new level.

Next up ensure the central bank is doing it’s bit to ensure monetary policy is being loose enough to correspond with the economic circumstances. I actually believe the RBA is too tight even at 3.25% as it doesn’t seem to be nudging bank lending at all. The problem as I see it is that interest targeting is fundamentally flawed and shows its shortfalls at the peak and troughs of cycles. If the money supply is contracting even at these low levels of interest rates we have problems. I suppose though that going much lower on the interest rate front could create an enormous problem with our currency/foreign debt which means we may have to wait until the Japanese and the EU get into a full on quantitative easing.

As I said earlier the tow most recent examples of hard one spending was Japan in the 90’s and the UK in the 70’s. Neither spending binges worked and left Japan saddled with 175% debt to GDP and the UK was forced to go to the IMF.

Look Spiros these are really dangerous times for the nation at the present time. We can’t have any policy mistakes as the consumer has one of the highest debt levels in the world. Bad policy, which causes unemployment to rise to 10%, could mean something worse than a recession is heading our way a there would be mortgage fallouts left right and centre putting our entire banking system in jeopardy.


Don’t think that what happened in Iceland even to a lesser degree can’t happen here especially with $500 billion in foreign debt.

hc said...

For what it is worth Spiros I got my PhD in international macroeconomics "Foreign Exchange Systems in a Model of Asset accumulation". I published my first paper from this in the Journal of International Economics. I agree it is a while ago.

The reason I got out of macro is that the field is a void - the result you want depends on your theory priors and there are not good reasons for adopting particular priors. This is one of the reason macro practitioners these day eschew theory and use black box approaches such as time series analysis. (Another reason I got out of macro is that the hundreds of time series seminars I have attended were so boring and uninformative).

I am disappointed by this discussion. I defended Turnbull's package because I think it is smart and better than Rudd's. All I got by way ofr discussion was tribal support for one side or the other.

Rudd's package is huge. It is the path to huge debt and Turnbull's is more conservative. Given that economies now are operating outside the past range of sampled experience I prefer a more conservative package.

Spiros said...

Harry, there's a Senate inquiry into the package. You should go and give evidence - seriously.

"these are really dangerous times for the nation at the present time."

JC, I agree. As Harry says, we are in completely unchartered waters. It is actually very scary. Anyone who says they know for sure what is going on or what to do about it is a fool.

Anonymous said...

a few fact.

70% of the deterioration of the budget comes from the economy.

The increase in discretionary spending is both modest ( a little bit more than Howard left us in his last budget. That of course was at the height of a boom we possibly will never see again.)

We are facing the most dire economic situation since the depression.

That Rudd will try to lessen some of the impact with a program that has finite structural spending is commendable.

Criticism can be made at some of the spending on their long term impact.

However he is not spending a lot of money.

Given how deregulated the labour market is we will only get to 10% unemployment if there is a huge drop in output