The stimulus package to be unveiled shortly by the Federal Government must be finely calibrated to take into account the needs of all Australians, whether they live in capital cities or the country, are in paid work, self-employed or retired.
While the nation recognises that extraordinary actions are needed to cope in extraordinarily difficult times, this does not diminish the need for careful crafting of the stimulus package. The free market has spectacularly failed but the use of taxpayers' money to bail out giant corporations has left some people feeling uneasy, given that CEOs are as notoriously quick to take lucrative bonuses as they are to dismiss hundreds of anonymous workers.
That makes the task a delicate balancing job for Treasurer Wayne Swan who has finally acknowledged the federal budget will go into the red. This development is not to be feared or derided if, of course, the money is spent wisely and the dip into deficit is short term. If debt is so bad, why do so many of us have mortgages?
Clearly, the Government has no option than to act decisively and quickly, as it did with the first stimulus package to boost consumer confidence. Ministers knew then that the worst was still to come and, inevitably, the International Monetary Fund has now drastically revised down its forecast for the global economy and is calling for further action to support growth. The about-face in this forecast demonstrates just how rapidly the world's economic health is deteriorating.
The calls from interest groups for action reached a crescendo yesterday as the federal cabinet met to frame the second stimulus package. The economic prescriptions offered gratis to ministers cover the gamut from tax cuts to extra support for apprentices. At the same time, the Government revealed the tax take would drop by $115billion over four years because of the global recession and the collapse in demand from China.
Even though the news just keeps getting worse and worse, this is no time for panic. And, although handed the worst economic crisis in a generation, the Federal Government appears to be tackling the problem head-on and relatively calmly.
The crisis has prompted furious debate on whether governments around the world have learnt lessons from the Great Depression. Central banks are now running deficits (whether they like it or not) and printing money. The alternative, as well as we can perceive it at this stage, is to sacrifice jobs and economic output. Many countries are also following the United States' lead on deposit insurance which has made the banks less vulnerable to runs by depositors.
These actions, which contrast to the inaction of the Great Depression, suggest the world may avoid another depression. However, the global recession is already on our shores, as demonstrated by the projected drastic slump in tax revenue and the forecast increase in unemployment.
With Parliament resuming today, the Government is under pressure to reveal the stimulus package so we can see how it will act to pump-prime the economy. Opposition Leader Malcolm Turnbull is advocating tax cuts but their efficacy as a stimulant is questionable. Tax cuts for the low paid would be welcome as those workers are highly likely to spend the money immediately, but medium and higher paid workers will be tempted to slide the extra cash into their mortgages.
Home and business owners are expected to receive a boost today when the Reserve Bank reduces interest rates. The only point being debated is the size of the cut, with the go-ahead already taken for granted due to the gravity of the situation.
It is critical that Mr Rudd includes infrastructure spending in his stimulus plan, not just for its ability to create jobs but also because infrastructure has deteriorated through being ignored in favour of quick fixes. For instance, the heatwave has uncovered the inadequacy of power generation and rail transport in Victoria and South Australia. Mr Rudd could reflect on why we keep building four-lane highways to make roads safer for motorists, only to see them flooded with more and more trucks which are able to undercut rail freight by travelling faster. Improving trunk rail routes would attract more freight to rail, cut greenhouse gas emissions and reduce the risk to motorists.
The impact on Australia of the unparalleled drop in global demand requires fresh approaches and creative thinking. One revision that would help Canberra would be for Mr Rudd to stop cutting jobs and services in small public service agencies through the indiscriminate axe of the oddly-named efficiency dividend. The burden of the extra 2 per cent cut in funds imposed for this financial year should be removed immediately. How can he rationally reject that proposition after his promise yesterday ''to move heaven and earth'' to protect the economy in the face of the global slowdown?