Rudd Government, to some extent in conjunction with Brumby Government, is at pain to introduce and implement the financial stimulus package as promptly as possible to avoid more serious deterioration in the economy. Whether it is done so for the good of the country, or just an opportunistic political manoeuvre, early evidence indicates that the end does not justify the mean. How can it be possible to release a sensible and workable rescue package within days, if it takes months of research, preparation and discussion each year before the annual federal and state budgets are released?
In order to stimulate consumer spending, a lot of money has been handed out as cash. Cash is very versatile and liquid; it can be saved and spent readily – in the right and wrong way. Money should be paid in accordance to the demographic profile - based on the needs of different groups of population, and in what markets they will spend the “money”.
The intention of the 2008 $10.4 billion pre-Christmas package and the further $42 billion rescue package is to ensure money continues to circulate in the economy in order to maintain or create employment, and not to be put away. Money in the form of cash should be replaced by vouchers, valid for six months from date of issue, redeemable for specific purposes and not for cash.
Pensioners, in general, are not in regular employment and therefore have a lot of disposal time. Some choose to read or laze around enjoying life, while others join day trips visiting local shopping centres, nearby wineries or cottage industries. They do not purchase many consumer goods and lasting asset items, such as clothing, white goods, motor vehicles and real estate. On many occasions, they are targets of promoters for clubs operating gambling machines. Many of these recipients have gone through several recessions and even depression during their life time, and tend to save the bonus for “rainy days”. Unfortunately, they can also easily fall victim of greed and boredom and lose it all on the one-arm bandits.
Vouchers for intrastate / interstate holiday tour, accommodation, entertainment and dine-out meals, are most suited for the older recipients, and can help to keep the tourism and hospitality industries afloat and in the meantime avoid the money be spent on gambling.
While portion of the money given to lower income group is saved or paid off some debts, most of it is spent on less than healthy foods, cigarettes and gambling. At first glance, buying these food items helps the fast food business and tobacco companies, but unfortunately it also boosts the income of weight watching organisations treating obese clients, and associated health problems.
Vouchers for staple non-junk foods, education, books and stationery, rental or loan repayment will help relieve some financial burden of the recipients without creating longer term health and social problems, and in the meantime injecting money to small businesses, the pillars of employment.
First home buyers grant has been doubled to $14,000 for second-hand dwelling, and tripled for new homes. Additional rebate is also given for sale price under $500,000. By helping more first home buyers to fulfil their dreams of owning their own homes in a market where house prices seem unaffordable, and interest rate close to all time low will help to stimulate the housing / real estate industry.
Again at first glance the grant seems to be a fantastic approach, but in fact, this may turn dreams into nightmares. Indeed, the grant is an oxymoron in that one of the reasons of the global financial crisis was the inability to repay housing loans after the credit crunch in the USA.
If a buyer could not raise enough funds before the real estate decline, it is likely that his income was insufficient to convince financial institutions their ability to repay. Low interest rate will not remain so for long, and when it rises again in the next five years or so, these opportunistic buyers may not be able catch up with interest repayment.
At present, the biggest concern resulted from the crisis is job security, or rather job insecurity. Should a new home buyer lose his job, the house will be forced to sell under an auctioneer’s hammer.
The population between the late 50’s and mid-60’s age group have idle cash for real estate investment. Home buyers grant should be extended to this age group, on condition that they purchase new dwellings.
Since the grants and rebates are offered by the federal and state governments, with the compliments of tax payers, they should impose a ceiling on loans to minimise future default.
The most illogical and nonsensical item in the rescue package is giving rebate on ceiling insulation, which only benefits a very specific industry. If the government is serious about reducing energy consumption and green house gas emission, all other forms of insulation for a household should be given rebates including purchase of drapes and curtains, installation of external blinds, shades, tinted reflective film on windows and double glazing of windows.
Now that electricity and gas distributions are in private hands, any usage reduction due to insulation may affect the bottom line of these companies, and rates and charges will increase in due course, just as in the case of water in Victoria. As such, this does not give any incentive to house owners to have their dwelling insulated.
After all this being said, I am not entitled to any assistance or rebate!