Government burns the economy: how to douse the flames

In appointing Stephen Kennedy as the Treasury Secretary, the government selected the bureaucrat behind Turnbull’s potentially disastrous carbon tax.  He was also a player in Kevin Rudd’s spendathon following the 2008 global financial crisis; unsurprisingly he has gone for a “Full Ruddy” stimulus, contrary to Treasury’s former role as being the Praetorian Guard over politicians’ spending ambitions.

Australia’s spending now totals $320 billion, 14 per cent of GDP and among the most irresponsible in the world.

The stimulus effect will be ineffective but the resultant debt will be a Sword of Damocles hanging over the economy, squeezing the availability of investment funds for decades. Countering this with clearing away regulatory detritus is essential if we are to restore income-enhancing growth.

As for paying back the $320 billion debt and easing consumer cost impacts, we have the option of rescinding many policies that continue to slug the economy.  Three of these are:

  • The Murray Darling Basin Plan, which has reduced farmers’ irrigation water by some 20 per cent. Cancelling remaining funds and re-selling the water lost to agriculture would provide some $7 billion, a massive dividend in restoring the prosperity of the region, while boosting national food production.
  • The renewable energy program comprising Commonwealth budget spending at $1.6 billion a year on energy subsidies through the waste from program acronyms like CEFC, ARENA, GCS; and the consumer imposts through renewable energy regulations at $2.7 billion a year. Over 10 years, terminating these programs saves $43 billion.
  • Abandoning the diesel retrofit of the French nuclear submarine – a choice designed to appease greens, that was originally to cost $50 billion but is now $225 billion.  A sensible alternative would save at least $100 billion.

Will a government that has to date proved unable to wind back excessive regulatory spending or resist arguments from its advisers for excessive spending prove capable of such reforms?

A full version of this is in The Spectator  here

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30 Responses to Government burns the economy: how to douse the flames

  1. miltonf

    We got to the stage back in the krudd era where we would seriously be better off without the federal government and that abominable parasite robber state called canberra.

  2. Anonandon

    There will be a lot of fat to trim and not much argument against it. But I’m sure the Greens will have a crack at it.

  3. max

    Fooled

    How Gullible Politicians Promoted the Destruction of the Global Economy and Threw Us into the Abyss of Serfdom

    The model’s prognosis that the United Kingdom would have to count with more than half a million deaths the model finally revised their original estimate from 500 thousand to 20 thousand and later on lowered this number even more.

    https://www.lewrockwell.com/2020/04/no_author/fooled/

  4. Rafe Champion

    Why not buy Chinese submarines? They would probably throw in the base free of charge.

  5. Lee

    The whole “stimulus effect” is a massive waste of taxpayers’ money.
    Current and future generations will be shackled with the debt though.
    This so-called “Liberal” government is a disgrace to conservatism.

  6. Art Vandelay

    In appointing Stephen Kennedy as the Treasury Secretary, the government selected the bureaucrat behind Turnbull’s potentially disastrous carbon tax. He was also a player in Kevin Rudd’s spendathon following the 2008 global financial crisis; unsurprisingly he has gone for a “Full Ruddy” stimulus, contrary to Treasury’s former role as being the Praetorian Guard over politicians’ spending ambitions.

    Great column, Alan. I used to think that this government’s appointment of Lefties to plumb government jobs was due to their naivety and incompetence. However, when you look at their actions, you can only conclude that the raison d’etre of this Liberal administration is to drastically increase the size and scope of government.

  7. feelthebern

    The stimulus effect will be ineffective but the resultant debt will be a Sword of Damocles hanging over the economy, squeezing the availability of investment funds for decades. Countering this with clearing away regulatory detritus is essential if we are to restore income-enhancing growth.

    Correct.
    This is not stimulus.
    This is pumping oxygen into a dying corpse (considering the government just gave it two to the back of the head “dying” might be generous).

  8. Tim Neilson

    Another policy initiative:

    Politicians are to be remunerated like “fixed draw” partners at a professional firm.

    Their pay is fixed at a maximum amount per year. If the government makes sufficient budget surplus in a year to pay the maximum in full without going into a loss, they get the maximum.

    However, if there isn’t enough surplus, they get less than the maximum. They only get as much as won’t create a loss.

    If there’s no surplus they get nothing.

  9. tombell

    and while they’re at it get rid of the ABC.

  10. Mark M

    Kennedy should be consistent and devise a covid19 tax to save the planet … or do taxes only work on doomsday global warming?

  11. John A

    It would appear that the government is good at appointing pyromaniacs.

  12. Bazinga

    In regard to the submarines, perhaps we have overlooked that the government had and always intended nuclear and are just getting massive paper cost increases for diesel so the people get sick of it all and demand the end of the green madness. Or am I giving too much credit for cunningness?

  13. Colonel Bunty Golightly

    No they won’t cut any worthless programs – what they will go after the big superannuation pot!

  14. JohnL

    Abandoning the diesel retrofit of the French nuclear submarine

    Wrong! Abandon submarines – there won’t be the need for retrofit!

  15. Tel

    Same looting in the name of “emergency powers” as happened in the USA.

    Congress did not even do a proper vote … this is an organized takeover.

  16. Eyrie

    Now that the States are discriminating about where you live and demanding passes at borders, do we actually still need Canberra at all?

  17. Squirrel

    For the present, and for the sake of morale, pretending that it’s “hibernation” and talking about “bouncing back, better and stronger than before” is understandable – but absent a monumental miracle, that’s not going to happen, so spending decisions need to be made with a very sober assessment of the funds which will be available to governments in future.

    In a world where commitments of tens of billions and more are made with blinding speed, a decision to make child care “free” (without means testing) by increasing already substantial Commonwealth funding for child care by a couple of billion might seem like small change, but anyone who thinks this one will only be for six months and can then “snap back” is kidding themselves.

    It all adds up. It all has to be paid for eventually.

  18. Fair Shake of the Sauce Bottle

    $320 Billion here and $60 Billion there. Sooner or later we are talking real money.

  19. David Brewer

    The whole thing is such a wonderful example of “crisis economics”.

    It boils down to the precautionary principle in action. A routine problem – a new lurgy – has been blown up into Armageddon, when it very obviously isn’t: with extremely rare exceptions, Covid-19 is only life-threatening to people who are old and sick already, and who, by the way, would need protection from flu and other similar infections anyway.

    But once you’ve convinced yourself you are facing Armageddon, it’s easy to tell yourself you have no time to consider the cost-effectiveness of each proposed avoidance measure. People are dying, for Christ’s sake, just do it all, now! Shut down society to stop the spread!

    Only then, once it’s too late, do you pause to consider the costs. Apparently in Australia, and counting budget impacts only, that’s now 14% of GDP – in six months! Which is only the tip of the iceberg, omitting all the costs of imposed by social isolation, family and relationship breakdown, depression, mental illness, domestic violence, alcholism, suicide etc. etc.

    By contrast, a rational approach would have started from a realisation that only two things were necessary to minimise deaths from this thing – (1) stop old and frail people getting it; (2) have sufficient ventilators available for the old and frail people who get it anyway. Both objectives could have been attained at fiscal costs far below 1% of GDP, and with minimal disruption to social and economic life.

  20. Fair Shake of the Sauce Bottle

    Federal Debt virus reaches $320 Billion with exponential speed. This could kill quite a few.

  21. Terry

    Hmmm, I wonder if our self-anointed politicians and their bureaucrat overlords will be as quick with the sword on their perks, entitlements, and largesse as they were on our freedoms, wealth and livelihoods.

  22. Fresh Pat

    Subs, cancel the Turnbull South Australia black hand cock smokers drawback. Pyne should catch this overblown bug and stop breathing, thereby reducing the load on the worlds O2 for those who do not deserve it.

    Malcontent too.

  23. nfw

    Whenever I happen to pass through TV land I hope to see Churchill but all I see is Scott I can hand Out More Money than Kevin 747 Morrison.

  24. Bad Samaritan

    Ok, so we’ve seen the “final meltdown” (it’s no such thing) coming for decades. The Cats favourite alleged ‘arsehole’ John Howard tackled the profligacy head on 24 years ago; then took the Abo industry on; then the unions; then the Indos in Timor; then the country shoppers, and turned it all around, and gave the citizens a fair slice of their own taxes back. and then the further attempt to do away with union criminals “Work-Choices” saw him get the rocket as the Leftist slime struck back. And the opinion of Cats on JWH giving it to the left good+hard? hmmm…

    Idiotic Cats found the $55 billion sitting in the bank earning about $3-$4 billion in interest where it had previously been a hundred billion debt costing $8-$10 billion a year under the auspices of The Adviser to The Development Bank of China, and then declared that this was “profligacy” and that 12 years leading up to the long-suffering taxpayers getting some of their own money back was “welfare” and a disgrace.

    Long story short: Oz had it’s Trump…but within the constraints of the Westminster System,…. and the Cat’s loyal opposition has bagged him ever since for not having been The President of the US of Australia. Of course we know that JWH would have said “Be alert but not alarmed” in this current fake-crisis and still Cats so hate him!

    But back to the current BS “meltdown”…

    The supply of goods has not been reduced. The supply of most services has not been reduced. It is only some retail (small services retail) which has been made illegal. and gatherings; whether for commercial purposes or not. This latter is a disgrace, but economically of no importance.

    Where there might be a reduction in goods is in some imported goods due to price increases due to the weakening of the $A…which may be counteracted by an increase in exports. and which may make manufacturing these things in Oz again look viable. So why the “we’ll be rooned BS”?

    Plus, the huge govt debt has not sunk us before, and nor will it this time…because the Oz Govt is now using accountancy sleight-of-hand instead of either actual borrowing money…or else inanely just printing it…

    So I’ve been awaiting the US financial meltdown for two decades and it hasn’t come. And it’s still not here despite the $20 trillion govt debt…and the next $3 trillion on it’s way. And the Aussie meltdown did not arrive , and here’s the rub…it will not be arriving anytime soon.

    The Oz “free money” scheme will not overwhelm supply, especially since the actual supply of money doing the rounds will be less than what it would have been had everyone been working. example…

    Come payday (let’s imagine everyone’s paid the same day) electronic transfers would’ve been on average about $1200 per worker per worker: this after tax etc. Now they will be, on average much much less.

    And then supply will be he same (more or less) while this lesser amount of electronic (and some physical) cash chases it. Deflation is on the way!

    Anyone disagree?

  25. Sydney Boy

    Some good points, Samaritan. I am also perplexed at the hatred for JWH on the blog. Australia was in a worse position after WWII. And we recovered then. The fascism of the social distancing measures does concern me. Victoria has banned fishing. So a young unemployed guy in a coastal town can’t drive down to the beach all by himself and throw in a line to help feed his family? What has this become?

  26. Entropy

    The supply of goods has not been reduced. The supply of most services has not been reduced.

    Give them time, BS. Border controls preventing food production workers moving about will mean stuff won’t get harvested, or even if these controls might give them temporary consideration, will be implemented so poorly at the checkpoints that rational vegetable growers, for example, won’t put a crop in for the risk there won’t be any pickers available at harvest time.

    Your ration cards await.

  27. egg_

    The supply of goods has not been reduced. The supply of most services has not been reduced. It is only some retail (small services retail) which has been made illegal. and gatherings; whether for commercial purposes or not. This latter is a disgrace, but economically of no importance.

    What of the ANZ Job Ads index?
    No one’s hiring, buddy.

  28. egg_

    Anyone disagree?

    Fanciful – on paper.
    The effrontery to call Economics “Science”.

    Howard wouldn’t have cowed to the AMA and ACTU.

  29. I believe that, apart from the people who have lost their jobs, no one should be getting handouts. This cash splash is at odds with stay home advice and limits on purchase of essential goods; most stores are closed anyway. Also, pensioners of all people should not be out shopping.

  30. Bad Samaritan

    Egg. So there are few jobs available? Well we already know that…which is why getting the Coronavirus Supplement requires no looking for work….

    High unemployment = downward pressure on prices. On wages too, of course.. Here’s Alan…

    ‘The stimulus effect will be ineffective but the resultant debt will be a Sword of Damocles hanging over the economy, squeezing the availability of investment funds for decades. Countering this with clearing away regulatory detritus is essential if we are to restore income-enhancing growth.

    As for paying back the $320 billion debt and easing consumer cost impacts, we have the option of rescinding many policies that continue to slug the economy.”

    Well, there will be no paying back of debt since QE is an accounting trick, whereby govt borrows from itself and then forgives itself that debt. RBA prints and gives the Govt what it prints in return for bonds and then never redeems the bonds.

    So long as goods + services are produced and not swamped by demand, all will be OK. if you can help me understand why the endless QE in the US and Japan has not cracked them wide open, nor caused inflation…please do so. I am genuinely interested.

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