OPINE: Rebound with infrastructure
Fred Argy, Nicholls ACT
Date: 30 March 2008
An increasing number of economists are now warning of the high risk that the Australian economy will stumble badly by 2009 and require a significant policy stimulus. If recession threatens, fiscal policy will need to play its part with 'discretionary' spending increases.
But instead of knee-jerk actions to prop up uneconomic industries or to further expand middle class welfare, fiscal intervention should take the form of well-planned investments in productive projects the nation needs and wants. This will require advance preparation.
For example, short-gestation investments in economic infrastructure such as rail, roads and ports can be implemented as soon as the early signs of recession emerge. But they require cost-benefit analysis, priority setting and considerable consultation. The planning needs to start right now, with the aid of the Rudd Government's new Infrastructure Australia.
The same is true of the high priority areas of social and environmental investment, such as in public health, housing, public transport, skills up-grading, pre-school education and the restoration of our rivers.
Advance planning is also needed to ensure that funding decisions can be quickly implemented. There may be no time for prolonged negotiations with private investment banks or superannuation funds, especially if financial markets are seized up.
With public debt levels close to zero, the Federal Government could side-step such complications and opt to borrow on its own account or, what is the same thing, draw on the Future Fund.
Running budget "cash deficits" would not be in breach of any electoral understanding as the Rudd Government's official commitment is simply to balance the budget "over the economic cycle as a whole", which leaves plenty of room for counter-cyclical action.
If the worst case economic scenario were to occur, the opportunity would arise for the Rudd Government to invest in projects with high social and economic and environmental returns and turn the ugly threat of recession into a win/win triumph.
