Thurs 5 Feb - Well as I start writing this it is hard to not feel that there are two games being played at the moment and both are at the extreme ends of the court. In one corner we have a Federal Government that has come into 2009 with a determination to stare down the looming recession and throw not just the kitchen sink but the entire house at it as well.

In the opposite corner we have the State Government almost waking like a sleepy cat seeing what is up for dinner tonight while during their nap the house has burnt down.
Let’s start with the State Government...

Well as I start writing this it is hard to not feel that there are two games being played at the moment and both are at the extreme ends of the court. In one corner we have a Federal Government that has come into 2009 with a determination to stare down the looming recession and throw not just the kitchen sink but the entire house at it as well. In the opposite corner we have the State Government almost waking like a sleepy cat seeing what is up for dinner tonight while during their nap the house has burnt down. 

Let’s start with the State Government. I don't think anyone who was creating a budget in November last year was thinking 2009 would be a rosy time. We all know the details of the mini-budget and I think Ross Gittins put it best in his article yesterday;

"Trying to stop a deficit during a recession would involve cuts in government spending or increasing taxes when the economy is on its knees. This would be stupid because it would make the economy even weaker. And by making the economy weaker it would be self-defeating, making the deficit bigger rather than smaller." SMH 4/2/09

The blow out in the State Deficit revealed in the media dead zone of 5pm last Friday shows us the first tangible signs that the mini-budget was not just a piece of poor public policy but frighteningly, it has brought the NSW economy to its knees. The mini-budget provided $3.3 billion in increased taxes and charges, and at the same time included the cancellation of billions of dollars of infrastructure. This against a back-drop of a Federal Government that has dropped $118 billion of stimulus measures to counter the impending recession.

I think it is important here to say that no-one can claim to have all the answers but, every credible commentator will tell you that these times require a stimulus package.  Not only did we not get that from this State Government we got the opposite.

So of course I am thinking about what would we do differently? Well we have made a start by suggesting a significant cut in payroll tax for 12 months that would be targeted at businesses that employ 2 million workers in NSW. This would give relief to businesses trying to cut expenses as their revenues fall and enable them to keep people employed while they try to survive the next 12 months. We have also suggested that infrastructure timetables are brought forward and whilst we heard some words from the State Government on this sadly yet no action.

Whether our measures are the perfect response is a mute point, they are a considered start and stand in stark contrast to a State Government that has made the situation worse. We stand prepared to support any measures that will boost our economy but to date none have been forthcoming. Indeed when the Treasurer rose in parliament to deliver the mini-budget he did not even once mention 'stimulus', a clear indicator that this was the farthest thing from his mind.

So we end by turning to the other corner and Kevin Rudd's plan. No-one would argue that a stimulus is needed and in rapid order. The size and breadth of what is proposed is where I begin to hesitate and indeed Kevin Rudd's own words are the reason for the caution;

"There's no guarantee of success ...." AFR

Hold it there, and don't get me wrong I am not blaming him for the words as all legislators across the world are saying them but, surely it must send out a cannon shot if not a word of caution.   Where I have concern is with so many moving parts and levers to pull, there must be a balance between betting the house today against a more considered stimulus in time. Anyone not sure of success would agonise and indeed should over spending $118 billion to fix a problem. My sense for what it is worth, is cut the package in half and closely measure the impacts of each part of the package. The second part, if required would be spent on firmer ground or an even better scenario would be it is not needed!

Difficult times. Difficult decisions.

Cheers
Mike

Write Comment

Please keep the topic of messages relevant to the subject of the article. Personal verbal attacks will be deleted. Please don't use comments to plug your web site. Such material will be removed.
Name:
E-mail
Subject:
Comment:
Code:*

Be first to comment on this article