The Rudd government has gone on a massive $A10.4 billion spending spree in a bid to spare Australia the worst effects of the global economic crisis. Pensioners, families and first home buyers are the big winners under the government’s strategy that aims to prevent a deep and prolonged economic slowdown.
The package includes a doubling of the $A7,000 First Home Owners
Grant until June next year, or $A21,000 for first home buyers
purchasing newly constructed homes.
The rescue plan also includes one-off handouts include $A4.8 billion to
all pensioners and carers, and $A3.9 billion to low and middle income
families.
Almost half of the $A21.7 billion budget surplus will be pumped back into the economy, with Prime Minister Kevin Rudd warning the global crisis had entered a “new, dangerous, and damaging phase” that demanded action.
He suggested the government might loosen the budget purse strings further, saying the government was determined to take “whatever action is necessary in the future” to maintain stability of the Australian financial system and underpin economic growth.
“… the government has decided to act decisively and early on the question of this economic security strategy for the future,” he told reporters as he announced the strategy in Canberra.
Later, in his first televised address to the nation as prime minister, he moved to reassure Australians while also acknowledging many were “anxious, and even fearful” about the future.
“The truth is that we are going through the worst financial crisis in our lifetime,” he said in the three-minute address broadcast on news programs.
“I don’t intend to gild the lily. There will be tough times ahead.”
But he said the government was determined to do whatever was necessary to steer the economy through the crisis. The last time a prime minister made such an address was when John Howard decided to send troops to Iraq in March, 2003.
The rescue package gave a further lift to the share market, which gained around four per cent on top of yesterday’s five per cent rally – the best two-day gain in 33 years. The market also received a major boost from the biggest ever points gain on Wall Street yesterday.
Opposition Leader Malcolm Turnbull backed the strategy and said it would help cash-strapped pensioners but noted it was fiscal concerns, not compassion, that had prompted the government to act.
He also questioned whether existing homeowners might end up bearing the brunt of the bonus for low-income Australians.
“We trust that the government has taken into account advice from Treasury and considered the impact that this stimulus may have on the Reserve Bank’s ability to continue reducing interest rates,” Mr Turnbull said.
“But nonetheless we’re not going to argue about the composition of the package or quibble about it. It has our support.”
Business, welfare and housing groups welcomed the initiative, but economists also noted it may limit how much further the Reserve Bank of Australia (RBA) is able to cut interest rates.
“This package contains all three ingredients to have maximum impact. It is well-timed, well-targeted, and temporary,” Business Council of Australia President Greig Gailey said.
Commonwealth Securities chief economist Craig James said the package was not without its risks if the stimulus proved excessive.
“But with many advanced economies facing recession and financial systems shaky, we believe it is a risk worth taking,” James said.
There is no exact figuring of what impact the package will have on economic growth and inflation at this stage. That will come in next month’s mid-year budget review.
The government has said the surplus will remain in the black.
Tuesday’s package is the equivalent of a one per cent injection into economic growth, suggesting that this was the size of the damage that could have occurred to already thinning growth if the government had sat on its hands.
“The purpose of a surplus in the budget is to deal with tough times and tough times are with us,” Rudd said.
