This was me in Crikey earlier today – it’s in the free section so if you prefer reading things over there, please feel free.
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An interesting thing happened on the way to Christmas last year – the $10.4 billion Economic Security Package not only worked, but worked nearly exactly as Treasury had forecast it would.
If you happened to be one of the unfortunate sods that source your news and current affairs from the shallow end of the commentariat gene pool – say for instance, from the likes of Andrew Bolt – you’d probably be under the impression that “All the Prime Minister’s spending so far – not least last month’s $8 billion of handouts – has failed.”
The problem with making calls like that, calls that even the Opposition were making up until the morning of the release of the latest ABS retail turnover data – is that it’s an exercise in making stuff up. Not that these types seem to feel any shame in being so utterly wrong so often – politicians and partisan pamphleteers share a shamelessness gene that puts snake oil salesman to.. er, shame.
If we look at the seasonally adjusted retail turnover data up to the end of December, something pretty interesting grabs you by the eyeballs.
Don’t let the enormity of the big spikes on the original series freak you right out, that’s just what happens – we spend a lot more in the Christmas season than we do at any other time. It’s the Seasonally Adjusted figure that we’re interested in here as that is the series that adjusts for our seasonal spendathon and smooths the expected monthly volatility out.
That sharp uptick in the seasonally adjusted value for December would not have occurred without the Economic Security Package. It caused such an abnormal shock, abnormal even taking into account the large spike of activity that occurs over the Christmas period, that the ABS didn’t release their usual trend estimate for December because of the pure irregularity of it all.
So how much did the stimulus package pump into the economy that otherwise wouldn’t have occurred?
Peter Martin and his Age comrades estimated the figure to be $884 million. I used a slightly more complicated technique and arrived at around $900 million plus or minus $100 million. It’s either a case of great minds think alike or fools seldom differ – but the actual figure of how much flowed through as a boost in consumer demand certainly appears to be in the ballpark of 7 to 9% of the value of the stimulus package.
“7 to 9 percent” I hear you say, “That’s not much!” .
And you’d be correct – but that’s actually good news.
Treasury estimated when the package was released that around 30% of it would be saved, 30% would be spent in the first quarter of 2009, another 30% would be spent in the second quarter of 2009 and only 10% would be spent in the run up to Christmas.7 to 9% plus a smidgen more for what inevitably flowed through into the informal economy (that part of the economy that can’t really be measured properly) is as close to 10% as you’ll get. Treasury was spot on.
Let’s hope they are spot on again, for if they are there will 3 times as much stimulus flowing through between January and March and again between April and June than there was before Christmas. If you look at that chart, there is usually a bit of a retail hangover after the Christmas period – that’s the perfect time for the rest of the stimulus to flow through – propping up the depth of the usual trough and helping to take the rough edges of the size of the slump that would ordinarily happen in January and February.
In the meantime, the $6 billion that is estimated to flow into the economy over the next 6 months or so will be sitting in bank accounts or paying off debt until the time comes when consumers decide to open their wallets – either by using the cash from the government payments directly, or by retaking on credit to make purchases, credit that they had previously retired by using those government payments attached to the Economic Security Package.
Small Update:
Before uber economist and all round superb nit picker Labor Outsider comes in here and deservingly slaps me, I should really have added a last line that said:
“Or Churned”.
24 Comments
Excellent work there, Scott.
That’s really quite an amazing anomaly!
Any whiff of data on other sectors in which said money might end up, such as tourism and hospitality?
Typical Rudd-lovefest drivel.
The “economic security package” Orwellian newspeak coming out of ALP HQ was a good accompaniment as well.
So $10 billion dollars and a budget deficit later we can point to a small ephemeral spike in retail spending. Wow! I’m interested to see the medium term effects on unemployment, inflation and interest rates this panicked mess of a $42 billion package will have. After all, there’s next to no investment in productivity boosting infrastructure or corporate tax reductions.
What it amounts to is a completely transparent attempt by Rudd to put upwards pressure on GDP figures by a decimal or two so he and his sordid mob can avoid a technical recession.
The effects of the global downturn are really only just starting to have an impact on the domestic economy.
These morons, along with the economically illiterate Canberra press gallery and the other imbeciles that frequent this blog can’t really seem to grasp the fact that splurging a hodgepodge of money in an ill conceived, ill thought out manner without any consistency whatsoever is going to be extremely costly, possibly disastrous in the medium term.
Mark my words. In 12 months time, when we’re in the depths of the downturn and and the inept bunch of fools that occupy the treasury benches are out of ideas (and money), this “gamble” by Turnbull will be long-forgotten.
Patrick – the dead giveaway there is your bit about corporate tax reductions. It’s your sort that caused this problem in the first place. Tax cut.. Tax cut.. Tax cut .. the mantra of the Liberals and the top end of town for the last 35 years at least. Your kind are stuck in a FOR..NEXT loop… in other words, you’re plain loopy.
Uh oh, Rudd Rage!
Nurse!
patrick
You forgot to add “dont you worry about that”
It is interesting that the discredited US Republicans and Australia Liberals are singing from the same sheet music.
Turnbull echoes discredited US Republicans at his peril.
David Richards – the dead giveaway of your “rebuttal” was your disparagement of tax reductions. It’s your sort that gave us socialism, wage spirals and economic misery in years past. It’s also informs us of your economic illiteracy.
Yes. Tax cuts…Tax cuts…Tax cuts…Lead to job creation, believe it or not.
And Kevin Rennie, take a look at those famed and (as Possum would surely testify to) always accurate opinion polls. A majority of Americans *oppose* Obama’s insane $1.1 trillion dollar socialist redistribution plan.
Guess Turnbull’s echoing those discredited Republicans at his own peril.
http://www.abc.net.au/unleashed/poll/vote/total.htm
oh dear – Patrick is a trickle down theory acolyte.
Patrick Fogarty
It’s time for rational arguments ( if you have them) not rants.
Drivel/Orwellian/panicked/sordid/mob/morons/illiterate/imbeciles/hodgepodge/ill conceived/ill thought out/disastrous/inept/bunch of fools.
The author of this rant is surely one sick puppy.
Hey Possum – what’s the trend line? Is that from some kind of statistical process, or just what the ABS give out? I’m wondering why it’s similar to the seasonally adjusted figure, but not exactly the same.
No,I think he is the chief architect of liberal party policy
oops,silly me,thats one and the same!
BoP,
The trend estimate is an ABS produced figure. It’s a 13 term HMA (Henderson moving average) based on the seasonally adjusted data – where the seasonally adjusted data is itself an ARIMA regression model output of the original series. The HMA trend is a little different to an orthodox HMA as it’s got a bit of tailored asymmetrical weighting applied to the most recent observations.
In plainer english (!!) it’s a smoothed version of the seasonally adjusted series that allows for a small amount of variation to occur without interfering with any larger ongoing trend in retail turnover that may be evident.
But the variation this month in the seasonally adjusted series was so big that the trend would have done things that trend estimates shouldnt do – so it was left out and will be revised as further data comes in over the coming months.
Hey Patrick, who do you trust to keep interest rates at record lows?
At the moment what the Australian people want more then anything else is job security and some confidence in the future, all which the Rudd Government is not offering.
There is no doubt this is a government on L plates. Although there are some things contained in the mini budget which are good the majority of it is a disaster,
• it does very little for employment,
• at best it will give the economy a short term kick at the risk of long term prosperity,
• it doesn’t give enough bang for the buck,
• it doesn’t do anything to install confidence, (in fact it seems Rudd is obsessed with talking the economy down, the opposition should take him on big time on this. I am sure Rudd’s motive is to talk it down as much as possible then become the big hero when it all gets better and in the mean time he is causing a disaster)
• the cash hand outs are great but there no good if you don’t have a job, (the threat of getting retrenched or the fear created when someone you know gets retrenched is a lot more important to people then a few hundred dollars)
• the home insulation package is a great initiative but will be a disaster. It will take years to roll out as there are not enough installers to install insulation in every one’s house in any reasonable time to have any significant effect on the economy but worst of all will result in a lot of sharks getting into the business. The package needs to be done in stages to result in a successful roll out. Perhaps it should be means tested in the first roll out to limit the take up all at once. (The Liberals when in government experienced the same problem with implementation when they introduce the gas conversion for cars, there were people who wanted to take the offer up but couldn’t get it done)
To date, most of the Rudd government stimulus has been focus on consumer retail spending which will not create many jobs. If retail sales go up for a short period due to money stimulus, at the best it may put off staff redundancies for a few months but more likely the retailers will only seek greater productivity out of its employees for that short period of time knowing too well the stimulus will only be short lived.
The greatest concern for people of today is not passing a deficit on to the next generation but how a reckless spending spree could affect their lives today and tomorrow.
• The greatness of the spending could put in great jeopardy the extent of interest rate cuts and the duration of those cuts by the RBA affecting every Australian who has a mortgage.
• Australia is in a very unique position with a very low base of unemployment, no government debt and plenty of room to move with interest rate cuts. It should be pointed out that interest rate cuts in Australia has a bigger stimulus affect then almost any other country. Most of our mortgages are variable or short term fixed which means that as interest rates go down most mortgages go down too, causing an immediate stimulus to the economy. Not many other countries are in this position due to the fact that most of their mortgages are fixed long term, therefore there is a limit to the stimulus affect occurring from lowing of interest rates in those countries.
Any stimulus package should be spent where it can be leveraged to get the best bang for the buck and create jobs and job security e.g.
• funding packages and tax breaks for investment would motivate companies to invest their own monies. There are many companies which have shelved shovel ready projects which could commence quickly with the right government incentives. History has proven that trying to kick start government projects quickly is almost a impossibility therefore the reliance and incentive has to be for and on the private sector.
• bringing forward tax deductions for middle to low income earners would increase the spending power of consumers on a continue basis and for some would give them that extra buffer they need to survive or even enter into a house purchase.
To compare Australia’s economy to what is happening over seas is just a great over statement and to say this is a national economic disaster in Australia is just so far from the truth. The statement in it self will cause Australia to go into recession and the Rudd Government should be held accountable for this.
It is kind of odd to now see the last of the Howardites emerge from the jungle and start shaking their fists at the sky. Damn you data! Damn you reality!
[a small ephemeral spike in retail spending. Wow! ] I would imagine the people who didn’t lose their job were quite happy with that ’small’ spike and any future spike.
Let the market sort it out then.
Step one – save no jobs. Close eyes, turn backs. Remove staff from Centrelink
Step two – give tax breaks to the wealthy.
Step three – watch asset prices fall, small business go down.
Step four – wait two years then shout for joy as said tax cuts create a job.
Step five – complain about deficit caused by record unemployment costs
Step six – use Ouija Board to contact
http://cepa.newschool.edu/het/profiles/image/keynes.gif
tblanche forgot to add “Written and authorised by T, Minchin, Parliament House Canberra”
oops – N. Minchin got him mixed up with the muso LOL
Retail figures in the US are very weak.
http://www.nytimes.com/2009/02/06/business/06shops.html?hp
Patrick: It doesn’t make much sense to complain about a budget deficit, but wish for corporate tax reductions. One-off handouts and time-limited spending programs only put the budget in deficit for a short time – it’s like taking out a personal loan to buy a new TV. Tax rate reductions, on the other hand, are a recurring, permanent deficit – more like taking out a Foxtel subscription.
By what mechanism do you believe that the stimulus package(s) will “…be extremely costly, possibly disastrous in the medium term.”? Are you referring to further inflating asset values that are already in a bubble?
caf – and who gave us that bubble? Rattus and Captain Smirk.