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Rudd’s $42 billion dollars: the mother of all blunders.

February 6th, 2009 · Greg Atkinson · 23 Comments

Let’s get one thing clear from the start, attempting to rush a massive spending package through parliament with the minimum amount of scrutiny is not good economic management. It simply means that the people charged with managing our national economy have been caught unprepared and for that single fact alone, they should be held accountable.

There is a great myth that gets kicked around by both sides of politics and that is that the Australian public is smart enough to decide what is best for them. Of course what politicians are trying to do is get people on side by implying if you are smart, you will be able to see that their particular policy is best for you.

However the Australian public often make the most stupid mistakes when it comes to voting in and out governments. For example how could anyone unaffected by magic mushrooms have voted for Labor in the last NSW state election? But vote for Labor most people did; even with a mismanaged hospital system, a faltering economy and one government scandal after another, the “smart” electorate in NSW returned a group of people to power that would struggle to manage a fish and chip shop.

Let’s be honest with ourselves, the Australian voting public is generally no more wise than the mob were in the Colosseum in Ancient Rome. Put on a good show, toss around some free bread and most will love you. Most will not realise that they actually paid for the bread and the show via the money they paid in taxes but as they say, ignorance is bliss.

So here we are in “modern” Australia. Suddenly Kevin Rudd has woken up and realised that there is a national economic crisis. I am not sure if he realised this before he went on holidays or after, but in any case it seems to have caught him by surprise. Amazingly his close connections in China must not have told him what was being reported months ago: that the Chinese economy was slowing down in a big way.

By October last year commodity prices had collapsed as world demand fell and it was clear to most that 2009 was going to be a tough year. If you look at most commodities charts you will see how badly prices had fallen by October 2008 and so for a country like Australia that depends so much on commodities exports, this was nothing short of a disaster.

It was time for some big bold plans to be drawn up but what we eventually got was a round of Government pre-Xmas shopping handouts. Oh I hear some twits say: “didn’t you see retail sales figures were up because of the government handouts”? Yes of course they were up…so what? I bet I could stimulate the wine industry as well if I gave cash back to people to go out and buy a bottle of plonk.

Wow..what a big success, the country just blew billions of dollars over Christmas for absolutely no long term gain. And remember, much of this money will head offshore to pay for imported TV’s, PC’s and a vast of range of other consumer goods. Well done Rudd and Swan, our exports are falling but you stimulated the demand for imports! But China will not mind about that, it will tip our bilateral trade with them further in their favour.

Perhaps some readers may think I am being unfair on the Government. Well if so just ask yourself these very simple questions. Why weren’t detailed plans to support the Australian economy developed last year? Why weren’t these plans discussed, reviewed and debated in parliament last year so that a plan could be ready to implement now?

The simple and obvious answer to these questions is that the Government dropped the ball; they have been caught unprepared either because they are incompetent or were focused on other issues. Emissions trading?  Workplace reforms?  Catching the inflation genie perhaps? You be the judge.

The most worrying part about the $42 billion dollar economic stimulus package is that there will not be any clear key performance indicators. In other words what conditions need to be met for the plan to be judged a success? Rudd and Swan have no clear answers apart from saying that Australia will be worse off unless the money is spent.

So we could end up in massive debt, projects in chaos across the nation but Rudd and Swan will still say in 1-2 years time the package helped Australia. Some boffins from Treasury I imagine will also say in a couple of years time that they have data that shows the package helped, but nobody will be able to demonstrate in an meaningful way that the money was well spent.

In other words, does anyone care if we waste for example $10-$20 billion dollars or so over the next few years? We all should, but I suspect many people will just wait for their slice from the latest handouts and will not give a second thought to the burden this will put on working Australians for many years to come.

Then we get into some of the detail. The Rudd government is going to build some 21st century facilities for schools which is a good start since we are in the 21st century and have been for a while. Perhaps he was thinking of going retro and rolling out some 1970’s style classrooms ? In any case due to the mismanagement of the national broadband network the schools may end up with 21st century style facilities, but they will be wired into a 20th century information network.

Then we get to things like public housing and this sounds lovely, but have we fixed the management problems with public housing or are we going to end up with many of these assets trashed by delinquent tenants? You know the ones that take government handouts, sit at home all day and to thank taxpayers they trash the public housing they live in. (as an added bonus they might even let their children run amok at night and throw rocks at the police)

Is this a good use of taxpayers money? Will it create long term jobs? Maybe we should be getting people into work and out of public housing rather than just building more?

But Rudd is a clever political operator. By handing over large parts of the stimulus package to the States he has left himself a nice little escape clause in that he can blame the States in a few years if things do not go as planned. He can also blame the global economy, China, the neo-liberals, aliens and even his own party if he throws a “Latham”.

But one thing is for sure, no matter how the money is spent or wasted, the fact is that this proposed government spending is going to be a burden on the Australian economy for years ahead. Boom gates and painted schools are not going to help Australia compete in the global economy, and I fear we about to see a lot of money spent for little long term gain.

By the way, I wonder if we can ever find out how many times Rudd and Swan entered the term “economic plan to save Australia” into Google over the last few weeks? I also heard from a very unreliable and fictional source that the reason the Prime Minister missed the early vote in parliament the other day was because he was naked in the woods, covered in pig fat and trying to channel Peter Costello. It appears he was not successful.


23 responses so far ↓

  • 1 Vince L. // Feb 10, 2009 at 5:43 pm

    I cannot wait until I see Rudd’s get out of debt plan!

  • 2 Senator13 // Feb 16, 2009 at 7:30 pm

    They do have a plan, right? Im yet to see it… Maybe I have to wait for the Summit.

  • 3 Greg Atkinson // Feb 28, 2009 at 12:46 pm

    I think the demise of Pacific Brands has shown quite clearly that the $10.4 billion dollar handout was a failure. It does not even seem to have helped Harvey Norman much either..their interim earnings were down 58%. As is well known, many people would have simply used the government money to pay down debt or just save it in the bank, this is why cash handouts are not a great idea. Good politics maybe, but I thought Kev07 was above all that?

  • 4 Luke // Apr 14, 2009 at 2:43 pm

    Great commentary on some very short-sighted and reactionary economics. I can’t understand why more incentive hasn’t been given to small and medium business to increase productivity and employ more people. I would have thought a cash handout would have minimal effect in comparison.

  • 5 Greg Atkinson // Oct 26, 2009 at 9:08 am

    Well it seems that at least The Australian newspaper is now focused on the wasteful spending of Rudd & Co.
    Kevin Rudd gets two economic jolts Even the Business Council of Australia is now focused on the issue, it is just a shame they were not more vocal at the start of the year!

  • 6 Ralph // Oct 26, 2009 at 1:08 pm

    I think the Australian has been pretty consistent in it’s attack on Rudd’s wasteful spending. They’ve run a big campaign on the amount of waste going into the schools cash splash. And they went in hard on Indigenous spending that seems to disappear into black holes somewhere in the NT bureaucracy. Kudos to the Australian.

    But not enough swinging voters in redneck suburbia read the Australian, so it doesn’t do a great deal of good. If the tabloids ran a critical argument, then perhaps we’d see some changes.

    The big questions still remain though. First home buyers boost winding down, cash splashes have long since been spent, interest rates are going up. Our stimulus-funded economy is going to have some interesting times soon. Is K Rudd and the Goose going to dip into the honeypot and shower us all with some more free cash?

    I’ve just booked a honeymoon in Vanuatu next April. Some free K Rudd money would come in handy for that (as much as I hope it doesn’t come my way). Greg, would you eligible for the largesse, based in Japan?

  • 7 Greg Atkinson // Oct 26, 2009 at 1:26 pm

    Hi Ralph, first of all I guess congratulations are in order regarding the honeymoon. All the best to your wife and yourself!

    Yes The Australian has done a pretty good job for quite a while by focusing on government spending blunders but as you rightly point out, it doesn’t get much exposure in many areas and the tabloids so far are more concerned with “balloon boy” type stories.

    As for the government handouts, well I got the pre-Xmas one since I am still an Oz taxpayer. It went straight into the bank though so I am afraid I did not do much to stimulate the economy. Personally I would have been happier not to get the money and see the funds go towards a high speed rail link or something else that will benefit the nation for decades to come. In any case I know I will end up paying back what Kev gave me plus a lot more when at some point the government tries to balance the books.

  • 8 Ralph // Oct 26, 2009 at 2:28 pm

    Thanks, Greg!

  • 9 Greg Atkinson // Nov 5, 2009 at 12:02 pm

    Yes another example of a government spending initiative in tatters as reported in The Australian today: Federal film incentive package failing

    Yes when the chips are down and the planet is warming let’s try and encourage foreign film makers to Oz so they can dip into taxpayers money!

  • 10 Ralph // Nov 5, 2009 at 12:52 pm

    Yes, every kiddie gets a prize. They don’t seem to care where they money goes, as long as it’s being spent. As you suggested on your GDP thread – it all helps to show that they’re doing something, anything. The wheels keep spinning even if money is being sucked down the plughole in the process.

  • 11 peter care // Dec 28, 2009 at 1:38 am

    Hey guess what? Rudd’s spending spree worked. It stopped us going into recession. So how to get us out of the relatively small government debt? Cut upper class and middle class welfare. 1. Tax family trusts as companies. 2. No subsidy for private health insurance for families who gross over 250k p.a. 3. Tax super for over 60’s like 55 to 59 year olds. No child care subsidy for families who gross over 250k. 4. Scrap 1st home buyers grant, but allow small tax concessions on first home buyer savings accounts. 5. Scrap subsidies to farmers which are not also available to other businesses. 6. Scrap dividend imputation for companies and trusts. Limit to $5000 per annum per individual. 7. Limit losses from passive income to profits from other passive income. The remaining losses indefinitely get carried forward. All invalid pensions must be re-assessed every 6 years. This should put us back into surplus in no time.

  • 12 Greg Atkinson // Dec 28, 2009 at 10:29 am

    Peter C thanks for the comment. I think we need to remember Rudd’s spending did not keep the nation out of recession alone. It is pretty clear from the GDP numbers that our economy has escaped a “technical recession” so far because our commodities exports have held up relatively well. If Australia had a significant manufacturing export sector we would be in a recession and thus the reason we have avoided one is because we don’t “value add” much.

    Maybe this is something to be happy about..maybe not. I tend to be in the “not” camp.

    We also need to ask ourselves did we get good value from the money the Government spent propping up the economy?

    Anyway all that is water under the bridge and as you point out we need to think of ways to cut the deficit. I think cutting the first home buyers grant is a good move and I have never actually supported the scheme since in effectively penalises people who don’t want to own a home…ever.

    As for the other measures you suggest, give me some time to have a think about them. In general I am not a fan of major changes in terms of the tax system because it effectively changes the rules. If a person for example retires and has put in place a strategy to support them in later life, then I think it is a bit unfair to pull the rug from under their feet so to speak.

    Perhaps to get the deficit under control we should look at increasing the value of our exports instead of falling back on changes to the tax system?

  • 13 Senator13 // Jan 20, 2010 at 5:41 pm

    Oh no, he is at it again:

    http://www.theaustralian.com.au/politics/rudd-argues-case-for-special-freight-transport-routes/story-e6frgczf-1225821676919

    So with this is he admitting that the first two stimulus packages did nothing for productivity?

    Is he now going to admit that the ipod docs and skate parks do nothing for productivity? Is he going to now admit that all those billions could have gone to something truly productive like a high speed rail link or by bringing us into the 21st century and fund our future energy needs by commencing on nuclear power plants?

    They say that he only sleeps a few hours a night. That must mean that the rest of his time he is pretty unproductive because I truly struggle to think of something substantive that this Government has done. I really don’t think that he should be putting him self up as the poster boy for productivity. Especially with the hundreds of seminars, reviews, summits and conferences that are STILL ongoing/outstanding.

    Could this be another year of blunders?

  • 14 Ned S // Jan 21, 2010 at 1:21 am

    Given some recent debacles with toll roads and tunnels, Oz infrastructure wouldn’t be something I’d be rushing to invest in personally. It’ll be interesting to see how he’s planning on funding it. The superannuation pot has been mentioned of course.

  • 15 Greg Atkinson // Jan 21, 2010 at 8:16 am

    What truly scares me is that the Government has so far been unable to manage the projects it has going already. The money thrown at building school halls was mismanaged and no cost benefit analysis has ever been produced. The NBN debacle makes Australia look like technology hillbillies and I struggle to think of many (any) so called “shovel ready” projects initiated Rudd and Co that have actually done anything to improve productivity.

    So into this chaos Rudd is going to toss more money into a building program that lacks any business planning or any thinking about if the spending is good value for money. For every dollar the Government spends what is the expected return for taxpayer? The answer is: nobody knows! (and few seem to care)

    If an investment bank carried on like this Rudd would be lecturing them on ethics. Maybe he needs to look at his own.

  • 16 Ned S // Jan 21, 2010 at 9:01 am

    According to the link Senator provided Greg, Kev wants to see infrastructure built to support our productivity growth returning to it’s 2% pa glory days of the Hawke/Keating era – From it’s current 1.4% pa. And reckons this will result in each of us being $16k pa better off in 2050 – On average. So that can only be taken to imply that numerous and quite rigorous long term cost benefit analyses have been done … No? 🙂

  • 17 Greg Atkinson // Jan 21, 2010 at 10:53 am

    I reckon Rudd has pulled those numbers right out of thin air 🙂 Amazing he has the numbers before any detailed planning has been done…simply amazing!

    and folks…he will do all this while reducing CO2 emissions! (while also ramping up our population)

    Perhaps magic mushrooms are eaten often at The Lodge?

  • 18 Ned S // Jan 21, 2010 at 11:55 am

    Maybe Infrastructure Australia gave him the figures – Presumably they’ve been doing something since their January 2008 inception.

    Lots of frantic activity and development would be good for the economy in the short term I imagine. But as to the long term, while I’m not some anti-infrastructure Luddite, I just wouldn’t feel to voluntarily invest my money in the asset class based on anything I’ve seen to date.

    But hey, maybe our Public Private Partnership bods have been learning from their mistakes?

  • 19 Greg Atkinson // Jan 21, 2010 at 12:17 pm

    Infrastructure Australia chaired by Rod Eddington of Allco fame. One of the independent directors who voted in support of the Allco takeover of Rubicon. Let’s hope he has got a new calculator 🙂

    So what is on the list of projects…a high speed rail link..nope. Nuclear power plants? Nope. Just have look at some of the great projects they are delivering: http://www.infrastructureaustralia.gov.au/project_pipeline/contracted.aspx

    Jails, sports complexes,courts, sewerage treatment plants and film studios are all part of their grand plan to boost productivity it seems.

    This is all a smoke screen…most of this is spending that the State Governments should have funded years ago…so where did their boom years money go?

  • 20 Ned S // Jan 21, 2010 at 1:33 pm

    Hmmm … Not stuff you’d be rushing to pour your hard earned into as a private investor either mate? Nevermind, Kev will presumably make it sound a lot better when he does his brekkie time TV shows. (I own a tele. But it isn’t set up. And I’ll leave it that way.)

    The boom years … “Pissed up against the wall” as they say I fully expect … Ah well, to paraphrase Paul Hogan: “Keepa digging Mario!” (Or Aunty Kev will have to jump through the TV screen and “rip your bloody arms off” just maybe?) 🙂

  • 21 Greg Atkinson // Jan 21, 2010 at 2:26 pm

    Ned amazing it’s interesting to see how they have included projects that were scoped out years ago under the “Infrastructure Australia” tag. I reckon if you look at the list of projects less that 30% could possible do anything to help increase productivity. Of that amount, few I reckon could be justified on the basis of being good value.

    I think Aunty Jack would have Aunty Kev for breakfast 🙂

  • 22 Ned S // Jan 21, 2010 at 4:30 pm

    Never thought it would happen, but I’ve actually had the thought flick through my mind that for all their very naughty ways, Sir Joh and Big Russ just could have represented QLD’s glory days?

    Their sole saving grace was just maybe that they’d figured out how to make basic little enterprises like peanut farms and dairy coops pay before entering politics perhaps? And Yes, I suspect Kev might struggle with that fish ‘n chip shop you mention.

  • 23 Senator13 // Jan 23, 2010 at 2:05 pm

    Oh but our Kev has Sunrise all to him self.

    And appearing on ABC’s QandA all by him self too.

    No panel, no opposition – he has it all to him self.

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