Rudd $42A billion stimulus package - a few parameter facts

Tonight and early tomorrow morning I plan to write a full post on Management Perspectives on the Rudd Government's new economic stimulus package, dropping below the headline's to look at the underlying economics. I will put a cross-link here when the post is finished.

I was quite annoyed at the doom and gloom language Mr Rudd used in launching the package. I thought that this was quite the wrong approach.

In this post I want to focus briefly on just two parameter facts linked to the package, one an opportunity, the second a constraint.

The numbers in the package sound big and they are. But they need to be put in perspective.

Australia is an $US821 billion economy. The Howard Government exited with a budget surplus and no National Government Government debt. This gives us a fair bit of scope to move.

I would see no problems with Federal Government debt of perhaps 20% of GDP ($US210 billion). We could easily service this, retiring it as conditions improve. This means that there is plenty of scope for major new stimulus packages of the right type.

That's the opportunity. The balance of payments is the constraint.

As I have said many times before, our balance of trade on goods and services moved into surplus at just the right time, providing a further buffer. Because we import so much, economic stimulus flows over into imports at a time when exports are declining.

There would be nothing wrong with a trade deficit at this point. It spreads the stimulus. However, the size of any deficit is an issue because it has to met by either overseas borrowings or exchange rate movement. There are limits to both.

Postscript

I listened to Mr Rudd interviewed on TV tonight.

In response to a question as to whether the states could deliver their side of his stimulus packages in the required time horizon, the headmaster delivered a lecture that boiled down to this. They had better, or they will be financially penalised.

I almost yelled at the TV. Long before the financial crisis, I started warning that our current administrative systems are locked into patterns that make them less efficient and responsive. This applies to states, Commonwealth and the relations between them.

Since October I have cautioned that those systems - again I include the Commonwealth - are simply not geared to deliver in the required time horizons. I add my own estimates of response time delays in making economic assessments.

The delivery lags are not uniform.

Centrelink could make the required payments in early December from the first big stimulus package because this was a processing issue. I am not saying that it was easy, but it could be done.

Reading local newspapers I see that local councils have been able to get things going because they have quite big wish lists and are not bound in complicated administrative arrangements.

This is not true when we come to the bigger public service organisations. Life really gets complicated here.

I won't say any more until I have looked at the detail of the latest package.