Catallaxy Files

When the so-called $42 billion ‘economic stimulus plan’ was announced on 3 February 2009, the Prime Minister stated that it was to support jobs during Australia’s response to a severe global recession.

One of the measures was the ceiling insulation program which has been badly mismanaged and now cancelled. The Government has announced a replacement program.

Yet we have not analysed the existing program for its efficacy and whether it met its objectives:

The Energy Efficient Homes investment will:

Install ceiling insulation in around 2.7 million Australian homes;

Cut around $200 per year off the energy bills for households benefiting from these ceiling insulation programs;

Reduce greenhouse gas emissions by around 49.4 million tonnes by 2020, the equivalent of taking more than 1 million cars off the road.

Did it meet these objectives (notice that the Prime Minister on 3 February 2009 used the word “will” not “should”?

Haven’t we learned that rushed policy tends to have unfortunate side-effects and creates various distortions? And that among these distortions is to bid up substantially the cost of the labour being employed in the subsidised activity?

In the case of the insulation program, the cost per job has been estimated to be between $300,000 to $600,000.

And wasn’t the raison d’être of the stimulus package to assist Australia during a downturn? Well why do we need a stimulus package now when growth is solid and unemployment low?

In truth the Government’s stimulus package was far too much and focussed on spending measures which it was incapable of managing and that significantly distorted activity in the construction sector. In addition, the stimulus is likely to have been ineffective in its purpose, crowding out private sector activity.

But whatever the merits or demerits of a stimulus in February 2009, it is very clear that it is unnecessary in February 2010.

So the Government should take the opportunity of the cancellation of the failed insulation program to move on – accept that it was a mistake and use the money saved to reduce the deficit. Perhaps it might have some legal obligations for compensation, but it does not need a replacement program.

Unfortunately the Government hasn’t learned from its failure and is about to throw good money after bad.