Good Old-Fashioned Handouts…


The next installment in Australian neo-Keynesianism is in: $42 billion in Commonwealth spending to "kick-start" the economy, with the likelihood of another 1 per cent interest rate cut from the RBA to boot.

It’s a mix of old-fashioned handouts and public works spending, with some clever shoring up of the Government’s education and green credentials thrown in.

Nearly $13 billion will be spent on cash handouts to "working Australians", single parents with school-age children, students on Austudy and farmers. Perhaps 8 million Australians earning under $80,000 a year will get a cash payment of $950, although the details on who counts as a "worker" have yet to be defined. Parents with a kid at school will also get $950 for every school-age child. The money is due to arrive in April.

Another $12 billion will go to physical infrastructure and construction projects in public schools: according to Rudd, it will be "the single largest school-modernisation program in Australia’s history". Every one of Australia’s 7500 state primary schools will get a new building: either a "21st century library", a "multi-purpose hall" or money for modernising classrooms. Secondary schools will also get money for science and language buildings and for maintenance.

A further $6 billion will be spent on social housing, with the aim of adding 20,000 new "units of social housing" to try and cut the national homelessness rate by a quarter. More money will also go to maintaining existing public housing so that approximately 2500 dwellings are renovated up to livable standard.

And, as a sop to concerns about climate change, nearly $3 billion will be spent installing insulation in the roofs of rental and owner-occupied homes. This will certainly be welcome in the many parts of southern Australia that suffered through last week’s heatwave, but it will also help cut electricity consumption and therefore greenhouse gas emissions as well. Rudd claims the measure will prevent the emission of some 49 million tonnes of carbon dioxide.

Of course, schools and public housing are maintained and run by the states, and that has already posed a problem for Rudd’s education revolution. This time around, Rudd has threatened "zero tolerance" for any state governments who don’t quickly spend the Commonwealth’s money. The Commonwealth clearly intends to play hard-ball with any state treasuries who try to hoard federal money in order to prop up their own balance sheets. Given that most states will desperately need Canberra’s money to stay solvent, this is far from an empty threat.

Business gets some further relief, with a 30 per cent allowance for small businesses making necessary purchases and capital investments, on top of the 10 per cent allowance announced last year.

All up, it’s a $42 billion "nation-building and jobs plan" which will send the budget $22 billion into deficit this year and $35 billion into the red next year. Unemployment is expected to rise to 7 per cent, while interest rates are of course expected to keep falling — perhaps even to 2 per cent. "Nobody likes being in deficit," declaimed the Prime Minister, "and I don’t like being in deficit at all." But he is firm in his message that "this is not a question of choice" — it is what we are required to do.

On the other hand, there was no announcement on labour market programs or workplace training (though Rudd foreshadowed a subsequent announcement on this front). Nor did pensioners or self-funded retirees receive any extra largesse. And there were no tax cuts.

Rudd’s package is both good macro-economics and very smart politics. On the back of his (somewhat disingenuous) assault on neo-liberalism in The Monthly, Rudd has seized the opportunity afforded by extraordinary times to reframe the national economic debate.

The schools investment in particular is canny politics. Our nation’s private schools benefited from massive Commonwealth stimulus in the Howard years, while public schools crumbled. The outcome was an increasingly two-tiered system in which public schooling suffered in comparison to swankier private schools. The new measure, which Rudd argues "will take a feat of national organisation and planning we haven’t seen since the 40s" (in other words, since the last wartime economy), will make a huge difference to our nation’s largest stock of human capital. It’s an unprecedented investment which will be cheered on by primary school teachers and principals across the country.

The other investments announced in the package are also badly needed and therefore just as welcome — particularly the investment in social housing.

Malcolm Turnbull has been left on the back foot for the time being, unable to directly criticise the package but instead pledging to "work with" the Government while scrutinising the spending package "line by line". With a shadow treasurer already the laughing stock of the nation’s economists, he is going to have to read carefully to avoid being sidelined in the current debate.

In the long term, Turnbull must fancy himself a chance at a 2011 election fought on Labor’s economic record. In the short-term, the Australian economy continues to deteriorate.

Ben Eltham is New Matilda's National Affairs Correspondent.