Tuesday, October 14, 2008

Economic Plan Is Right… For Now

All of a sudden $22 Billion doesn’t like all that much. Not so long ago, the Federal Budget Surplus sounded like a colossal amount. It seemed as if the federal Government was sitting upon a pile of almost endless wealth, wealth which rightly belonged to all of us, the taxpayers and citizens of Australia. It certainly seemed as if the Government was being unnecessarily churlish in its reluctance to boost payments for old age pensioners and other welfare dependants. We are a wealthy country, and we can comfortably afford to give our pensioners a better deal.

Now, everything looks different. Not only is the Global Financial Crisis ravaging the value of share markets and our superannuation accounts, but the threat of an economic slowdown, or possibly even a recession, raises the prospect of unemployment and uncertainty. The crisis is also set to erode that massive Government Surplus through a drop in tax revenue, possibly to the tune of three or four billion dollars.

These are apparently desperate times, and while most of us would be wise to cut our spending and boost our savings, now is the time for our Government to do exactly the opposite. There are two reasons. First, and most obviously, there is a need for the Government to provide some assistance to people who are struggling to make ends meet. But secondly, and more importantly for the big picture, spending that money into the economy will help to encourage economic growth. If people have money in their pockets, they will be inclined to spend it on the things they need. Even if they blow the money, it will still feed into the economy. Economic activity means jobs, and it means bolstering the tax revenue base.

For those reasons, the $10 Billion dollar plan announced by the Government today is an investment. It is an investment into the wellbeing of the Australian people, an investment in jobs, and investment in the future. Along with the already announced infrastructure program and the banking guarantees, this plan represents a strong response to the challenges of the international crisis. It is the right thing to do.

For the Pensioners in particular, it is an important step in keeping the faith on pension payment reform. It is to be hoped that the Government will follow through and deliver the goods on full reform of pensions next year. Of course, this is where things could become awkward. No one can be certain that the worst of the Global Financial Crisis is behind us. Already half the Budget Surplus has been spent in today’s announcement. What happens if global conditions take another lurch towards the abyss of world recession? What happens if $10 Billion is simply not enough to protect against the ravages of international conditions?

All of a sudden, that $22 Billion surplus doesn’t seem quite so massive after all.

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