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Stimulus begets stimulus

Luke Malpass | 26 February 2010
When the government’s insulation stimulus package was being rolled out last year, who would have guessed that it would be suddenly canned for contributing to deaths, house fires, and electrified roofs?

Suspending the insulation program has landed the Rudd government with an unpleasant political problem: business closures and layoffs. The government dished out taxpayer money to create artificial demand and ended up creating artificial jobs in very real companies, which now have to lay off very real people.

Never one to admit defeat, on Wednesday, the Prime Minister announced a $41.2 million transitional job support package for those in the industry he and his government have falsely created. ‘If we don't get your businesses up and running again soon, we understand that it flows through to transport, that it flows through to the fast food business,’ he said. According to The Australian, businesses will be offered funding to keep workers on until June when a new package begins.

Let’s get this clear: we have a ‘transitional’ insulation stimulus package to replace the dangerous, scrapped insulation stimulus package until a new insulation stimulus package starts in June. It makes a mockery of the stimulus policy whose core promise was ‘shovel ready jobs.’

Quite why a new insulation policy ‘package’ is needed is a mystery. If it was to stimulate the domestic economy, it comes about a year too late. And even a year ago it was really a counterproductive waste of money – delivering woeful energy efficiency returns for money spent.

Contrary to last year’s gloomy predictions, the Australian economy did not fall off a cliff. Fiscal and monetary policies are now working against each other. With the fiscal stimulus packages, the government has the foot firmly on the accelerator at the same time that the Reserve Bank has strongly signalled it will hit the brakes through higher interest rates.

Stimulus and ‘job schemes’ inevitably create jobs that have little long-term future, and can end up being far more destructive on the very industries and workers they are meant to protect.

Perhaps a new term should enter the Australian political lexicon: progressive interventionism.

Luke Malpass is a Policy Analyst at the Centre.