Rudd's Latest 'Stimulus'

Borrowing money from the public and then redistributing that wealth isn't the way to do that, mate.

From today's Wall Street Journal Asia.

Prime Minister Kevin Rudd assured Australians Monday that he intends to "move heaven and earth" to ensure that the country doesn't fall into recession. Borrowing money from the public and then redistributing that wealth isn't the way to do that, mate.

Mr. Rudd's Labor government sold its latest spending spree, announced yesterday, as a "national building and jobs plan." The A$41.5 billion ($26 billion) package amounts to about 2% of projected 2009 GDP. Of that figure, the only true stimulus is a temporary A$2.7 billion tax break for small businesses.

The rest of the money will be lavished on infrastructure, the poor, public servants and pet projects. Some of this spending may arguably represent worthwhile long-term investment -- A$14.7 billion, for instance, will be directed to building and renovating schools; another A$6.6 billion will build low-income housing. But building things like boom gates for railway crossings won't do much to pump-prime the economy now.

Then there are the handouts to Labor's core constituents. Low-income earners, farmers and single-parent families -- many of whom already qualify for government handouts -- will get a one-time A$12.7 billion cash payment. The environmental lobby scored A$3.9 billion for ceiling insulation and solar panels. Local governments will see A$500 million to "support large strategic projects" including "town halls, community centers and sport and recreation facilities." Presumably this is so all the newly unemployed can meet and reminisce about the times when they used to have jobs.

Canberra claims that for every A$1 of spending, A$2 of jobs will be created. But money isn't created out of thin air. Mr. Rudd's spending has sent the government budget deficit into the red, so Canberra will have to sell bonds to finance its A$41.5 billion spending spree. Since the government is funded by private citizens and businesses, Australian taxpayers are ultimately on the hook.

Meanwhile, economic conditions are deteriorating. The government projects the economy will expand 1% this year and 0.75% next year. Unemployment is expected to hit 7% by June 2010. Mr. Rudd says his government will consider further measures if the situation worsens. He said yesterday that doing nothing would result in more job losses.

Maybe so. But shuffling money from the public to private purse won't ease that pain much and only digs Australia deeper into debt. Yesterday's stimulus package is Canberra's fourth major initiative in six months. Instead of doling out more money, Mr. Rudd would have a better chance of keeping his promise to avoid recession by trimming back his sprawling government and returning more money to taxpayers.