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Rudd's reality: keep business going
letter published in The AFR, 10 February 2009

With strong support from Treasury head Henry and apparent backing from the International Monetary Fund and the Reserve Bank of Australia, Kevin Rudd argues his recession-beating measures need to be as large as $42 billion and legislated quickly. Malcolm Turnbull on the other hand says it is larger than necessary and contains a questionable composition of measures.

With a host of expert commentators offering Keynesian and anti-Keynesian views, who is right?

The short answer is, nobody really knows: there is evidence both ways.

One thing that should be said, however, is that the Treasury, the RBA and the IMF have limited credibility given the continuing downward revisions in their forecasts, their obvious refusal to forecast a recession for political and confidence reasons and the weird comment by Henry implying policy should aim to avoid even one quarter's downturn. 

While current experiences never repeat the last, any analysis of history suggests Australia must be in for a recession that will depress activity for at least three to four years. For one thing, despite large stimulatory measures already taken, the continuing deterioration in major overseas countries indicates a much sharper reduction in overseas activity and employment  than suggested by official forecasts. Even with the much lower $A, this will produce a very sharp fall in exports, with obvious adverse consequences. Overseas the financial system (sic) is also still in very bad shape.

Accordingly, even assuming Rudd's measures do add 0.5 per cent to1per cent to GDP in the next two years and "support"  90,000 jobs, that addition will almost certainly be from a negative starting point.

The reality is that, even with the best of intentions, Australia cannot prevent a recession. What the Rudd Government can do is to make is easier for businesses and individuals to handle.

Most important would not be highly expensive job creation (seemingly over $400,000 a job) on projects (such as school buildings) that add little to productivity. Rather, temporarily suspend all legislation governing employer/employee relations so as to give businesses maximum flexibility to negotiate changes in conditions that would minimise unemployment. At the same time adopt also Bob Brown's suggestion for an easing in the testing for the dole.

Des Moore
Director, Institute for Private Enterprise
South Yarra, Vic 3141

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