Tuesday, October 14, 2008

Australian Government's new stimulus package

This morning in Keeping a sense of perspective I suggested that the Rudd Government should take a deep breath before rushing into economic stimulus measures. This afternoon the Government announced a $10.4 billion Economic Security Strategy to strengthen the Australian economy in the face of, and I quote, the worst global financial crisis since the Great Depression.

My point in this morning's post was the need to take time to address issues in the real economy. Mr Rudd has chosen to act now, still using the language of economic warfare, so what's in the package?

The announced approach contains contains five key measures, four of which are new:

  • $4.8 billion for an immediate down payment on long term pension reform.
  • $3.9 billion in support payments for low and middle income families.
  • $1.5 billion investment to help first home buyers purchase a home.
  • $187 million to create 56,000 new training places in 2008-09.
  • Accelerate the implementation of the Government's three nation building funds and bring forward, the commencement of investment in nation building projects to 2009.

This new spend will be entirely funded from the budget. Mr Rudd notes Treasury advice that the Budget will still be in surplus after these measures. The Government will publish a full budget update in the Mid-Year Economic and Fiscal Outlook within a month.

Pension Payments

There will be a lump sum payment of $1,400 to single pensioners and $2,100 to pensioner couples made from 8 December covering.

  • Age Pensioners;
  • Disability Support Pensioners;
  • Carer Payment recipients;
  • Wife and Widow B Pensioners; Partner, Widow and Bereavement Allowees;
  • Veterans' Affairs Service Pensioners;
  • Veterans' Income Support Supplement recipients;
  • Veterans Affairs Gold Card holders eligible for Seniors Concession Allowance;
  • Those of age pension age who receive Parenting Payment, Special Benefit, or Austudy;
  • and Eligible Self Funded Retirees holding a Commonwealth Senior Health Card (CSHC)

People who are receiving Carer Allowance will also receive $1,000 for each eligible person in their care.

The Government's Economic Security Strategy includes help for self-funded retirees who are eligible for a Commonwealth Senior Health Care Card. Those who hold a Commonwealth Seniors Health Card or are Veterans Gold Card holders eligible for Seniors Concession Allowance will receive a payment of $1,400 if they are single or $2,100 to couples.

The Rudd Government approach is presented as a first step in pension reform and follows the lump sum approach introduced by the Howard Government. The spend should flow directly into increased consumption.

Child Payments

There will be one-off payment from 8 December to certain parents of $1,000 for each eligible child in their care. Those who will receive the support include:

  • Families who receive Family Tax Benefit (A); and
  • Families with dependent children who receive Youth Allowance, Abstudy or a benefit from the Veterans' Children's Education Scheme payment.

The Family Tax Benefit is means tested, but cuts out at a reasonably high income level. The Government's costing estimates are based on payments for around 3.9 million Australian children.

Again, the focus is on people who are likely to spend.

First Home Buyers

The current First Home Buyers scheme will be amended:

  • First home buyers who purchase established homes will have the grant which they are currently entitled to doubled from $7,000 to $14,000; and
  • First home buyers who purchase a newly-constructed home will receive an extra $14,000 to take their total grant to $21,000.

First home buyers will be eligible for the First Home Owners Boost from today (14 October, 2008). All contracts entered into by 30 June, 2009 will be eligible for this new additional assistance.

This one is a very mixed blessing. The increase in the grant on existing homes will, as happened when the original scheme was introduced, flow straight through into higher house prices.

The grant for new homes should add to construction.

Jobs and Training

The Government will spend $187 million to create an additional 56,000 training places this financial year in the Productivity Places Program. Mr Rudd states that there has been a huge demand for training since the Productivity Places Program began in April, with more than 50,000 jobseekers enrolled and over 11,000 having already completed their training in areas of skill shortage.

Nation Building

The Government will accelerate the implementation of the Government's three nation building funds. Government Ministers will bring forward their interim Infrastructure Report so that work can commence in 2009 on projects in the key areas of:

  • Education and Research;
  • Health and Hospitals;
  • Transport and Communications.


I have mixed views on this package. At this stage I just wanted to get the details down. I will comment on the implications a little later.


For the benefit of those interested, I extended my analysis of the economic stimulation package in two posts on my personal blog:

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