Malcolm Misses The Point

EDITORIAL WEDNESDAY 04.02.09.
Malcolm Turnbull is a very smart man. He is intelligent, educated, erudite and successful. It should be safe to assume that he knows something about the operations of world financial markets as part of his fortune was amassed by running a merchant bank. So here’s the question: should we have any faith in his warning today that the Federal Government’s Nation Building and Jobs Plan is too expensive and too poorly targeted? Does he make a valid point, or is he merely playing politics?

It’s a vitally important question because the Opposition has declared that it will vote against the Plan for those reasons. Without their support in the Senate, the package could well be stopped before it has even started. The Prime Minister has accused Mr. Turnbull of simply pursuing an ideological agenda “to let the market rip,” while the whole point of the Plan is not simply to bail out the market, but to protect ordinary Australians from the worst of the economic downturn while preparing the economy for recovery in the years ahead.

One way of making a judgment is to consider the observations of the responsible economists and commentators who have almost universally endorsed the Plan. Even those who have criticized the Plan for omitting some sectors, for example health and hospitals, have not claimed that it is wrong to invest in schools, housing and roads. When it comes to opposing the Plan, the Opposition is standing almost alone.

On that basis, it would have to be said that if Mr. Turnbull is playing politics then he’s not doing it very well. The majority of opinion would seem to be against him, meaning that by definition his position is not merely a matter of populism. So the natural conclusion is that he genuinely holds the opinion that the Plan has not been well thought out. Could he be right?

The suggestion that the total bill is too high is a matter of opinion, but if the purpose of the Plan is to deliver a shock treatment to the economy, it’s hard to see why more isn’t better. As far as driving the budget into deficit is concerned, it has to be remembered that the bulk of this expenditure is not ongoing or recurrent spending. Most of it is capital spending or one off items that will not be repeated. Far from setting the budget up for ongoing deficits, the tap can be turned off again just as quickly as it has been turned on. Additionally, if the plan is successful at propping up economic activity it will flow through to stronger tax revenue. It’s not the size of the spending that is the problem. The real question is the effectiveness.

Malcolm Turnbull claims that spending any more money on cash bonuses is a complete waste, and that the previous round of bonuses in December were a failure. Unfortunately for Mr. Turnbull, the December retail figures have also been released today and they tell a different story. Retail spending jumped 3.8% over the previous month, and 5.7% over the previous December. After soft figures all the way through 2008 that is a good result. Of course, it is only a short term benefit, but the cash bonuses are only one component of the overall plan.

From a political point of view it would seem to be even more injudicious when it is the ordinary everyday battlers who will benefit most from the cash, while people in Mr. Turnbull’s position are easily seen as silver tailed fat cats who are out of touch the challenges confronting their constituents. Trying to deny the people the bonuses they have been promised is politically stupid, especially when it was the Howard government who virtually invented the practice of handing out one off payments in the first place.

It could be argued, and Mr. Turnbull does, that measures such as the insulation of housing should be means tested. But that misses the point of the exercise, which is to boost jobs and keep the economy growing while at the same time providing a lasting community benefit. It could be argued that other sectors such as health and hospitals are more in need of a boost. But on balance, only Malcolm Turnbull and a small band of hardcore market fundamentalists are saying that the Plan is wrong, and that in itself should tell us something. After all it was hardcore market fanatics who caused the problem in the first place.

To simply block the Plan is an act of destruction and risks doing a lot more damage, both economically and politically, than running a deficit does.