David French | 16/03/2009 8:46:38 AM

This article was originally published in The Morning Bulletin as "Government acted to replace people's regular spending" on 15th March 2009.

Prior to Christmas the Government handed $1,000 to pensioners. Soon many taxpayers will be receiving $900. In all, around $42 billion is being spent to help shield the Australian economy from the effects of the global downturn. The package includes funding for school buildings, home insulation and first home owners grants. It has been widely criticised by those who believe that the money is all being spent on plasma TV’s, pokies, and prostitutes.

Consumers and business have stopped spending. To stall the onset of unemployment, the government has to replace that spend. This basic economics is a lesson learnt from The Great Depression. Its ultimate impact is closely related to the extent people save, and taxation rates. The distributions have maximum effect when received by people most likely to spend it, and who pay least tax – pensioners, single mothers and other low income earners. Once the beneficiaries have the money, it is best spent in people intensive industries.

To find out whether right-wing fears are real, I called Lorna (friendly, mature, blonde, not a regular contact of mine), to find out whether she had been stimulated by Kevin’s package. About as people intensive as you can get, and better informed than you might imagine, Lorna hadn’t felt any impact. “We might get a few jobs out of it, but the single guys were spending anyway. We didn’t get many pensioners and as for married men, the wives have already spent the money in their minds”, she said. Perhaps on plasma’s at Harvey Norman? Our store contact says they have been walking out the door - so much so that Kogan is now launching the “Kevin 37” plasma. It sells for exactly $900! Retail is CQ’s biggest employer and so we should be pleased about that.

The spending on schools and Pink Bats is more problematic. From bricklayers to barristers, most everyone is involved in the building industry. That is positive. But what are the long-term benefits of a new assembly hall? Does every run-down shack need Pink Bats? What about building some decent innovative infrastructure? Forget chasing down the white elephant that is carbon sequestration. Why not build a solar power station? More expensive than coal – yep - so what? Do you want clean air or not? And with the mining downturn, there are people available to build it. The money was going to be spent anyway. Lead. Just call California, get the plans and build one.

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