Friday night catch-up - end of economic stimulus in Australia?

In Saturday Morning Musings - problems in Australian industrial relations I mentioned the problems facing the Government in introducing a new industrial award system. These continued during the week with Minister Gillard forced to order further changes to the new approach. The Australian had a very unsympathetic article on the some of the problems.

Overspending on the schools' component of the national stimulus package has forced the Australia Government to reduce the number of houses to be built for social housing by 800.

In a number of earlier posts, too many to list, I suggested that the role-out of the capital expenditure elements of the stimulus package would experience problems in part because previous financial constraints had reduced official capacity to do new things, in part because of way administrative systems now operated. They are just not very fast.

In a number of posts on the economy, again too many to list, I argued I suggested that Australia was going to do better in this downturn than forecasters suggested. This was not based on any divine vision, nor on any claim to leading economic expertise. All I did was to test some of the claims by looking at the numbers. I just could not see how the worst forecasts might happen.

I suggested that the downturn provided us an opportunity to do new things. I also warned that we had only a certain window to do this before the Australian economy turned up.

The Australian economy is clearly strengthening. The remarkably good capital expenditure figures released yesterday are just the latest sign of this. While parts of the Australian economy and indeed parts of Australia are still clearly in recession, this has been a very mild downturn.

I believe that the Government can take a degree of credit for result. While Australia's economic fundamentals would have cushioned Australia to some degree in any case - this was the reason for my positive attitude - I also thought that the Government's core focus was right, although I thought that the first home savers grant on existing house was a waste of money. That said, I also think that delivery problems mean that we have lost an opportunity.

Over two months ago in conversation with some NSW officials involved with social housing I warned that that we could not assume that the promised funding would be available. We had to do things as fast as possible. My reason then was based simply on my assessment of the economic outlook. I think it fair to say that I was seen as alarmist.

I do not want to be misunderstood here. Those NSW officials were trying to do things fast, but were also wrestling with a remarkably cumbersome and complex Commonwealth apparatus that essentially limiting quick action. They also had to deal with the NSW system with its own glacial aspects. 

Over the last six weeks there has been increasing commentary on the need for budgetary restraint, on the likely earlier than expected introduction of expenditure caps, of possible Reserve Bank Action to increase interest rates. Forecasters who were so negative are now moving to the opposite corner.

My own view on the economic outlook is a little more cautious. Still, the most likely outlook is for accelerating economic activity. As this happens, the official focus will move from stimulus to cost-cutting.