Response to previous post on Rudd's handout plan

I received a number of negative comments on The Australian's online 'Letters Blog' in regards to the letter that constituted the previous blog post. Some of these were particularly unpleasant. It was even suggested that I should not bother coming home to Australia if I held such views. Such opinion, I thought, was a trifle extreme. However, in an effort to clarify my views on the Rudd plan and perhaps to placate the angry commentators I wrote a few paragraphs in response to my detractors and tried to have them published on the 'Letters Blog'. Unfortunately, these were not published. I have attempted to reproduce them here from memory. Although my detractors will never read them, not knowing address of this blog, I feel better that my ideas are fully explained.

My criticism of middle class welfare in the previous post/letter was primarily targeted at Rudd's increase of the First Home Owners Grant (FHOG). There is virtually no doubt that the FHOG increases the price of housing and the demand for credit. A large proportion of the taxes that fund the FHOG go directly into the pockets of property owners with little evidence that housing accessibility/affordability is improved. The increase in the FHOG will serve to maintain/increase house prices. It is not the government's role to artificially prop up prices with tax dollars in a manner that only benefits property owners. Moreover, having increased the level of the FHOG, it is much harder to reduce it to its former level or remove it completely. Cash handouts breed a culture of expectation of government assistance where no such expectation should exist.

I agree that pensioners and carers in Australia get a raw deal. I would find it nigh on impossible to live of the Australian pension at its current level. My criticism of the Rudd policy is that pension/carer's allowance reform was needed rather than a cash handout. Why not increase the fortnightly pension/carer's payments permanently rather than giving a cash handout with no guarantee that the actual level of the pension/carer's payment will increase in the future? Providing a permanent boost to the level of these welfare payments would boost consumption from these groups as a result of their anticipated higher incomes in the future. Such an increase in these payments should have occurred at the time of the last budget.

However, I concede that if you want to give provide a big kick to pre-Christmas consumption in an economic downturn, five billion dollars to carers and pensioners will be highly effective. This is because these groups already spend a high proportion of their income on consumer products and, in all likelihood, the cash that they receive will be used directly for consumption rather than being put to other uses or savings. This should provide an important boost to consumer confidence. I am more comfortable with this part of the Rudd package than the FHOG increase. Having said this, I remain deeply uncomfortable about taxes being collected only to be given away in cash rather than being spent on infrastructure, government services or ongoing welfare payments.

Finally, I was disappointed by by the fact that, in the context of a $10 billion package, the largest component not being disbursed in cash was $157 million for skills development. Surely, in a package as large as this, the Government could have done a little better on human capital and infrastructure development. Some large and much needed infrastructure projects coupled with spending on education and skills in the billions would have been good additions to the overall package.

I hope this explains my views more clearly. I should also note that economic policy at a time of economic downturn is a highly contestable area. I understand and welcome differences of opinion on the subject.