Wednesday, February 04, 2009


In his latest offering, conservative Australian cartoonist ZEG is disgusted at a NSW hospital system that now cannot even pay its bills

Stop talking down the economy Kevin

By Michael Costa. (Mr Costa was formerly a Labor party Treasurer of NSW)

IT wouldn't have mattered what the Prime Minister announced in his fiscal stimulus package - it won't be sufficient to counter the impacts of the current global economic difficulties. Kevin Rudd should stop talking down the economy. Yes, we do have problems but we are well-positioned to see our way through. Constant exaggerated and negative commentary creates uncertainty among investors and consumers. What is the point of providing a $10 billion fiscal stimulus and then scaring the recipients? Is it any wonder many people chose to save their portion of the stimulus.

Rudd is talking up fiscal policy because it enables the Government to appear to be doing something. The truth is monetary policy, interest rates, remains the key economic driver at this stage of the cycle. This is why the Reserve Bank's mishandling of monetary policy in the last half of 2007 was so damaging to the economy. A one-off fiscal stimulus, depending on size and form, will only take the edge off bad economic numbers in the short-term. It will do nothing to resolve the underlying structural problems in the economy. It is a political strategy more than an economic one.

Australia is better positioned than most major economies to see out the current difficulties. Our problems are not as severe. The financial system is fundamentally sound. The economic reforms of the Hawke/Keating period mean most of our product markets are efficient. The corporate tax windfall from the economic boom enabled the Howard government to reduce the national debt. Greater integration with Asian economies, particularly China, will continue to support the critical commodities sectors. While growth in China is expected to slow, it is still growing at high levels.

Further reductions in interest rates will provide a more sustainable benefit to the economy than the increases in government spending. Reductions in interest rates benefit all current borrowers. Interest rate reductions also have the benefit of changing the financial viability of projects currently being considered and may result in them being brought to the market a lot sooner.

The Government should focus its attention on providing an environment that supports business confidence. The quickest way for the Government to restore business and consumer confidence is through tax cuts. It should also provide assurances that these cuts will be maintained until sustained global economic recovery. It should shelve policy that will create an uncertain investment climate.

The Japanese experience with deflation has shown that faced with uncertainty, corporations and households will focus on debt reduction rather than investment and spending. It is in this context that infrastructure investment is important. Government investment in infrastructure helps create an environment of confidence. It enables businesses to plan their future investments around that infrastructure. At a minimum, if Rudd cannot say anything positive about the economy he should say nothing.


Plan delivers little bang for very big bucks

When it comes to activist fiscal policy, it seems that nothing succeeds like failure. The apparent failure of previous stimulus packages to achieve the desired boost to economic growth is always seen as an argument for yet more stimulus measures. Governments never draw the more obvious conclusion that activist fiscal policy is ineffective.

The Government has now implemented no fewer than four stimulus packages: the $10.4billion Economic Security Strategy; the December Nation Building Package; the Council of Australian Governments funding package and now the $42billion Nation Building and Jobs Plan. What's more, the Government says it "stands ready to take further action". With an election due next year, it is unlikely this latest fiscal stimulus package will be the last....

The Government has rationalised its stimulus packages as measures to support economic growth and employment. On the Treasury's numbers, gross domestic product is expected to be around 0.5 per cent higher in 2008-09 and 0.75 per cent higher in 2009-10 as a result of the latest stimulus package. The Government also claims the package will "support" 90,000 jobs. Note that the Government is careful not to claim that the package will "create" 90,000 jobs. The Treasury still expects the unemployment rate to rise to 7 per cent by the middle of next year.

Even on the Treasury's numbers, this represents little bang for the stimulus buck. But this should come as no surprise. Historical experience with fiscal stimulus packages in Australia and abroad is far from encouraging. Japan, for example, rolled out one stimulus package after another for the better part of a decade during the 1990s, to little effect.

Why is activist fiscal policy generally ineffective in stimulating economic growth? The failure of discretionary stimulus measures reflects a basic reality that governments cannot create economic activity, they can only redistribute the income and wealth created by the private sector. This redistribution can occur between different sectors of the economy, but also across time. Discretionary fiscal stimulus attempts to bring forward demand through unfunded spending measures or tax cuts. In other words, the public sector saves less and spends more. This can take the form of running down an existing budget surplus, as well as going into deficit.

The problem for all governments is that these unfunded fiscal stimulus measures ultimately have to be paid for out of future taxes. An unfunded fiscal stimulus package of $42billion is thus equivalent to announcing a $42billion future tax increase. To the extent that households and businesses anticipate a higher future tax burden, they will respond by reducing spending today. The idea that activist fiscal policy can stimulate growth and employment relies on the notion that the private sector suffers from a form of fiscal illusion.

This is not to say that governments should do nothing in response to an economic downturn. There is much that the Government can do to improve the structural performance of the economy, supporting long-run economic, employment and productivity growth. But the criteria for good government policy do not change with the business cycle.

It is very easy for governments to come up with long lists of seemingly worthwhile projects. The hard part is choosing which projects should be funded given limited resources and competing uses for those resources. The danger with activist fiscal policy is that governments relax the criteria for good policy for the sake of pushing money out the door. By throwing out the constraint that new policy measures should be fully funded, they abandon the fiscal discipline that would otherwise force the government to choose carefully between competing alternatives.

Fiscal stimulus packages often result in a misallocation of resources, as the government hands out money to the endless list of seemingly worthy projects, while the rest of the economy is left to pick up the bill. The correct focus for fiscal policy is the structural and supply-side measures that will deliver sustainable gains in future prosperity. Unfortunately, the political imperative is for governments to be seen to be doing something, regardless of long-run consequences. The latest stimulus package satisfies that imperative, but at the cost of future prosperity.


Union boss blasts climate guru

The patriarch of Australia's biggest blue-collar union has launched a stinging assault on the credibility of the Rudd Government's climate change adviser, Ross Garnaut, calling him "wacko". Australian Workers Union national president Bill Ludwig yesterday poured scorn on Professor Garnaut's proposal that Australians move away from eating cattle and sheep and instead consume kangaroo meat because of environmental benefits.

Speaking to the AWU's national conference on Queensland's Gold Coast, Mr Ludwig also challenged the science of man-made global warming, suggesting it could be caused by volcanoes. The former shearer and influential figure in Queensland's ALP told conference delegates he was not a climate change sceptic. But he said, nonetheless, that he supported debate on the science behind the theory, before launching into a headlong criticism of Professor Garnaut as author of the Government's white paper on climate change.

The union chief said climate change was described initially as global warming, until evidence proved unequivocally that the planet actually got cooler. "It's not global warming any more, it's climate change," Mr Ludwig told delegates. "That gets them back in the game. These people are pretty flexible to be relevant in these times."

Mr Ludwig ridiculed Professor Garnaut's suggestion to move away from farming cattle and sheep and to rely instead on kangaroo meat because it could involve less land cultivation and less methane gas. "I thought, 'Hello, here's another wacko'," he said.

Mr Ludwig also suggested climate change could be influenced by volcanoes, rather than human intervention. Volcanoes released more carbon dioxide into the atmosphere than humans had suggested, he said, and he joked that more efforts might be made to cap volcanoes than to introduce an emissions trading scheme.

Mr Ludwig said the scientific community should not always be trusted to get things right, pointing to the unfounded alarm prior to the year 2000 about the so-called Millennium Bug, which did not have the drastic consequences some had predicted.

Mr Ludwig's comments came as his colleague Paul Howes, the AWU's national secretary, renewed pressure on the Rudd Government to provide relief for companies battling hardship caused by the global financial crisis by offering exemptions from carbon permit payments. The comments from Mr Howes, contained in an AWU position released yesterday, revise the union's endorsement in December of the white paper on the scheme. Mr Howes also argued that employers who benefited from taxpayer support under the carbon reduction scheme starting in 2010 should also be told by the Government that they could not demand pay cuts from their workforces.

"The AWU can't accept companies accessing taxpayers' money to get through the needed environmental change process, then turning around and campaigning for my members to take pay cuts," he said. Asked about the comments of Mr Ludwig, the AWU's Queensland secretary, Mr Howes, said his union's official position was to keep an open mind on climate change science. "Personally, I believe that climate change is real and it's happening," Mr Howes said. "I think most delegates in the room do."


Angry doctor throws baby at Qld. public Hospital

A baby at a Queensland hospital was assaulted by a doctor who lost his temper when the child wouldn't stop wriggling, and an elderly patient was left to die in a hallway after being denied proper treatment, according to allegations made to the Crime and Misconduct Commission. Three hospital staff have sought whistleblower protection after detailing allegations of gross medical neglect and incompetence, overcrowding, bullying, intimidation and cover-ups at the Bundaberg Hospital.

A highly qualified nurse who spoke to The Courier-Mail told how she was repeatedly made to falsify records to hide lengthy waiting times in the emergency department. She said triage cases were improperly and dangerously downgraded because of understaffing. She said a troubled teenager who waited five hours without seeing a doctor ran away and slashed her wrists. And a doctor said he was too busy to see a boy who had been stabbed in the leg in a suspected child abuse case. The cases are among 100 serious and minor procedural errors on the hospital's prime reporting database.

Dismissed as a troublemaker and frustrated at the lack of response, the nurse and two others took complaints to Burnett MP Rob Messenger, who first raised allegations against the hospital in Parliament in 2005. "They have made allegations which lead me to reasonably suspect misconduct by a number of public officials," Mr Messenger said. He called for an inquiry, saying it was clear patients and employees of Bundaberg Hospital were "in continuing danger of physical and psychological danger".

The CMC was told the doctor threw the baby on its back and twisted its arm after angrily shouting, "Keep him still". It is believed the child suffered bruising but was not seriously hurt. The elderly man who died on the trolley was refused acute care after his triage rating was downgraded.

"Good nurses and doctors and administration officers who work miracles every day are being placed under unbelievable pressure by a government that won't properly resource staff," Mr Messenger said. He said the $41.1 million upgrade promised by the Beattie-Bligh governments had not happened. "They have spent $8.6 million and instead of the 30 extra beds promised, we got five. There is clear evidence of understaffing and underfunding." Mr Messenger said there were more beds at Bundaberg hospital in 1969 than there were now.

The nurse making the allegations said she believed nothing much had changed at Bundaberg since events that sparked a royal commission. "Patients are still abused and refused proper treatment, and they still have the gall to smooth the whole disgusting mess over with half-truths and convenient forgetfulness," she said.


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