Australia's $10.6bn rescue package

Kevin Rudd this evening addressed the nation to give details of his $10.6bn ‘rescue package’. It is basically a massive fiscal stimulus package:

• $4.8 billion for an immediate down payment on long term pension reform;
  
• $3.9 billion in support payments for low and middle income families;
  
• $1.5 billion investment to help first home buyers buy a home;
  
• $187 million to create 56,000 new training places in 2008-09 (comment: small beer relative to the other items); and
  
• Acceleration of the implementation of the government's three nation building funds (education, health, infrastructure).
  

Benefits will start coming on line from early December with single pensioners receiving a lump sum payment of $1,400, pensioner couples receiving $2,100, and people receiving the carers allowance $1,000 for each eligible person in their care.

The rescue package comes on top of the guarantee over the weekend for 100% of bank deposits and is sourced from the c.$20bn surplus in the recent budget.

A good way to blow $10bn?

If a surplus ever was going to be drawn down now is probably the right time. What’s currently a credit crisis is soon going to become a nasty and lingering business recession here and elsewhere so an early inoculation against the downturn may be a good idea. IMF forecasts for Australia are for an economic slowing, although notably not the zero per cent growth facing many other OECD countries. Australia's well regulated banks also are generally in good shape so the landing is going to softer here than at home and this package may help ensure that's even softer and for worse off groups. $10bn is also not a huge amount of money in the scheme of things (c.1% of GDP) so it could be seen as a sort of insurance policy in uncertain times.

On the other hand there should be a few questions asked:

• Is it the right time to try and target a fiscal package? We’re in the eye of the storm of a credit crunch at the moment. Sure, the ‘real’ effects will land in due course in a business recession but what would be the cost of waiting another week or so to have a better idea of where markets are heading? The key to fiscal packages is ensuring they land at the right time and we'd have a better idea of when that might be in even a few days' time. Of course the timing is more about the politics but they'd be other ways to manage this (e.g. signal the size of the package but announce the timing in the next few weeks).
  
  
• Has there been sufficient time to fully think through? Perhaps they’ve been thinking about this for a long while and there's been some rigorous analysis. But I suspect not: and spending $10bn warrants serious examination to get it right.
  
  
• Is it appropriate targeted? The package is partially targeted but not completely – for example to all pensioners. If Australia’s income distribution is anything like the UK’s this is not a good way to tackle the potential poverty effects that Rudd says it is designed to – pensioners have the highest levels of income variance of any group.
  
  
• Some bad spending items in there. $1.5bn for first time buyers is more good money after bad.

Meanwhile, over in Blighty, Gordon seems to be getting some good headlines e.g. 'Gordon Brown has saved the world's financial system, says economics Nobel Prize winner' from today's Daily Mail as both Europeans and Americans copy elements of the British plan.