Some people have short memories. It was only in December that "self funded" retirees received a $1400 cash handout from the government. This was $1400 more than the unemployed got. But the payment did not stop one retiree from complaining in a letter to national newspaper last week that the Rudd government was "waging a silent war on self-funded retirees [who] were excluded from the December handouts."
Although some journalists also peddle this claim, almost no retirees over 65 missed out on the $1400. It might have been better if they had missed out, along with the families and others who got a slice of the Rudd government’s $8.7 billion cash give away in December.
Alternatively, the individual handouts could have been lower, say $500, and focused much more tightly on those who are most likely to help the economy stay out of recession by spending it. The unemployed are prime candidates, but they got nothing. Similar considerations apply to the $12 billion in cash handouts, due to be delivered later this month as part of the government's $42 billion stimulus package announced in February.
After last Wednesday's official figures showed that economic growth went backwards in the December quarter, the Coalition leader Malcolm Turnbull was quick to denounce the failure of what he calls the government's "cash splash", or "sugar hit". The government replied that the 0.5 percent fall in national output would have been worse without the cash injection. This may be true, but the question remains — are there better things the government could have done with the $21 billion in cash handouts it has announced since October?
Turnbull's point is that the handouts will only have a fleeting impact on the economy, yet add to government debt. He argues that the government should have spent about $20 billion less on its stimulus packages. Many economists, however, have no quarrel with the size of the stimulus when a savage recession is engulfing much of the world.
But some would have preferred the government to spend the great bulk of the $21 billion in ways that produced more lasting benefits for the nation than cash handouts. They are not objecting to temporary nature of the spending. But they see no reason why temporary spending should not produce more enduring gains. Others fear that spraying around cash only engenders a handout mentality when Australia should concentrate on enhancing the productive base of the economy, or, at least, improving community amenities.
Shortly before delivering the initial $8.7 billion in cash handouts, the federal Labor government allocated a mere $300 million to local government for small capital works programs that were ready to go. At least $2 billion could have been quickly spent on a huge backlog of worthwhile projects that would have supported jobs and local contractors and left communities with better facilities. Similar considerations apply to so called "shovel ready" projects at a state level.
There is also a long queue of low emissions technologies ready for the next development step, but their promoters have no hope of finding private sector funding during a financial crisis. As professor Ross Garnaut pointed out in his climate change report — commissioned by the government — the research, development and commercialisation process for new technology is one of those areas where market failure often occurs. As a result, public sector funding could be justified even if there were no need for a stimulus package.
Rising unemployment will further undermine economic confidence. So another option would have been to direct more of the $21 billion to direct job creation, rather than hope people spend a handout in ways that add to demand within Australia. Subsidies for firms that employ extra staff could help. So could temporary grants to employ more staff to overcome shortages in universities, research centres, hospitals, nursing homes and so on. People made redundant could be offered serious retraining opportunities, including places at universities, while paid the minimum wage.
Apart from the issue of whether cash handouts provide the desired economic stimulus, they foster a sense of entitlement that governments can longer afford to indulge by paying for ever expanding upper and middle class welfare. Handouts also generate a sense of envy in those who miss out, or wrongly think they do. This only adds to the pressure to make more people eligible for welfare benefits.
December’s $1400 handout went to almost every retiree in the nation. One financial planner has told this writer that his clients include several multi-millionaires who got the $1400, but have no intention of spending. Some personal finance journalists even complain that the government’s next handout — $900 due later this month — is flawed because it doesn't go to most retirees.
There are two good reasons they miss out. One is that they got $1400 in December, unlike most workers. The other is that it’s meant to be a "working bonus". Even so, retirees can still get it if they pay at least a dollar in tax. True, this is hard to do, given that all superannuation payouts are tax free, no matter how big. Nor, thanks to the seniors tax offset for those over 65, do seniors pay any tax on other income until it reaches $28,867 for singles and $49,360 for couples.
Australia is entering new financial territory in which it won't be possible to keep giving handouts, and favoured tax treatment, to people who can afford to fend for themselves. A key reason is that the commodities boom has vanished, along with a bonanza in company tax revenue, that is unlikely to reappear for decades, if ever.