Stimulus politics

With the Coalition rejecting the stimulus package, it might seem like it has moved from policy to politics but I suspect that it was always there and it is ambiguous who to blame. The problem is that we now have uncertainty and no one is going to think that is a good idea.

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But I’ll reiterate again that the notion of bringing forward tax cuts is not a change in permanent income. It does nothing to change incentives as those incentives were coming up anyway. All it does is bring an additional average $1,700 payment forward now. It is broadbased as compared with the low-middle income targetting of the Government and depending on who you are you can take your pick. My guess is that the targetted approach is better as that is more likely to hit the liquidity constrained.

The Coalition is putting forward other ideas. For instance,

One proposal the Coalition is seeking to discuss with the Government is the Commonwealth paying a portion of the Superannuation Guarantee Levy on behalf of small employers (those with 20 or fewer staff) for the next two years.  This measure will directly improve the cash position of small firms, directly reduce the costs of employment, and so directly contribute to preserving jobs.

But surely that is just more saving. A variant might be better — cut the superannuation requirement now or provide a mechanism to defer it. That would provide assistance to small business but allow workers to recoup it later on. I’m not sure about the details but it does highlight something I have been stressing: we need to work on credit policy.


5 thoughts on “Stimulus politics”

  1. Joshua,
    It would be harder to reduce the Super Guarantee requirements (temporarily or otherwise) than you imagine.
    Many people have a 9% super requirement enshrined in their industrial instrument (EBA, AWA, ITEA, Award, etc). Amending the Superannuation Guarantee Act would leave this requirement intact, meaning that some employees would still be entitled to the full 9%, and some wouldn’t (those without a super requirement in their industrial instrument, or those whose instrument merely defers to the Act).

    It would be administratively complex and create much confusion.


  2. Addendum: I’m not saying it would be impossible for the Commonwealth to reduce the Super Guarantee rate, just that it would be complex.


  3. So it’s “un-certainty” if the government refrains from doing something?

    Such an argument is conceptually and factually weak, as has been shown by Robert Higgs in his classic article about how government-created uncertainty prolonged the Great Depression.


  4. “The problem is that we now have uncertainty and no one is going to think that is a good idea.”

    I think this is a weak argument. Perhaps it is a typical economist argument?

    Regardless of whether the stimulus is needed or not, the fact that we are in this situation is an unfortunate one, and any enormous spending measure of this kind deserves at least SOME scrutiny. I have no fundamental problem with the stimulus, but in the name of parliamentary democracy I also have no fundamental problem with delaying it.

    It is true that going along with whatever the Government wants will reduce uncertainty. But surely there are other factors that need to be taken into account.


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