It’s an indication of how nervous the ruling class is about the prospect of economic collapse that Rudd the financial conservative has become Rudd the $42 billion man.
The stimulus package, which passed relatively intact through the senate on February 13 with widespread business support, is first and foremost an attempt to stop Australian capitalism going into a nosedive.
As Rudd said on January 31: “The International Monetary Fund has predicted for 2009 the worst year for the global economy since the war.”
The IMF forecast for Australia was that growth would be just below zero (that is, recession) if no further action were taken.
“Therefore this government remains resolved to take whatever further action is necessary to deal with these falls in revenues, growth and employment for Australia, caused by this global economic recession.”
Manufacturing, centred in Victoria, has been in recession for several years. Construction is clearly stalling, with major projects abandoned or delayed. Housing approvals were down 30 per cent in December compared to the same time a year before. The HIA warned that failure to pass the stimulus package would put 85,000 jobs at risk.
The government acted late last year, pumping $10.4 billion into the pockets of pensioners, carers and parents. The Reserve Bank estimated that the payments boosted disposable income by about 4.5 per cent for the quarter.
But with China, Japan and South Korea—all major destinations for Australian exports—plunging into recession, it has not been enough.
Rudd may continue to talk up the prospect of avoiding recession, but the massive stimulus he is delivering to construction and allied trades—via school maintenance, public housing and house insulation—indicates the seriousness of the situation.
The stimulus package will, however, only soften the impact of the global economic crisis, not prevent it.
Rudd claims the spending will create 90,000 jobs, but unemployment will still rise by 300,000.
As the Financial Review put in on 4 February: “Even on Treasury’s forecasts, which are more optimistic than others, the economy will barely grow this year and next and unemployment will jump from 4.5 per cent to 7 per cent.”
Rudd has either retained an element of his financial conservatism, or is keeping more spending up his sleeve, as the stimulus package is still modest by global and historical standards.
Brian Toohey wrote in the Financial Review: “Although seemingly large, the projected deficit of 2.9 per cent of gross domestic product in 2009-10 contrasts with 7.0 per cent average for other advanced economies.” And his colleague Laura Tingle noted: “While the size of forecast deficits sound staggering, they remain relatively small in historical terms.
“The current forecast peak in the budget deficit occurs in 2009-10 at $35.5 billion. This represents 2.9 per cent of gross domestic product.
“… in 1994-95 when the budget was struggling out of the recession of the early 1990s … the deficit peaked at 4.1 per cent of GDP.”
In this context, the Liberals’ bleating about the size of the stimulus package looks both particularly mean-spirited and irrelevant.
In the short term, the package is good news to most workers. It combines long-overdue environmental and social initiatives with cash in hand. Pensioners are guaranteed an increase in the May budget.
It is far from perfect, however. The unemployed have been left to rot. Meanwhile, the Rudd tax cuts announced last year (and now largely forgotten) are aimed squarely at helping the wealthy.
Under Howard, those earning more than $150,000 paid a marginal rate of 45 per cent tax. On July 1 next year, that rate will be down to 37 per cent.
Nonetheless, it’s little wonder that Labor has surged in the opinion polls, to a 60-40 two-party preferred lead, according to a Morgan poll taken on February 7-8.
Rudd is determined to avoid being a one-term wonder. Recession destroyed the 1972-75 Whitlam Labor government. The Keating government was saved from defeat in 1993 only by the Liberals’ ineptness.
But his greater loyalty is to the health of Australian capitalism. That is why he is giving with one hand and preparing to take with the other. Rudd wants an immediate stimulus to the economy, and that involves pushing up household spending. So the package is tilted towards the lower paid (who are more likely to spend their $900 in full).
But in the medium to long term, he wants to push up the share of output going to profits. That is why, alongside the package, he is pushing an agenda of wage restraint.
Rudd is aiming to shift the cost of the crisis on to workers by putting the brakes on wages in order to increase profitability. The handouts are the sugar on the pill.
The $900 per worker (in effective a $17.30 per week increase over a year) will allow the Australian Fair Pay Commission to grant only a marginal increase to the minimum wage.
It will also put pressure on union officials to moderate pay rises. The end result is that public spending on the stimulus becomes a subsidy to employers by allowing them to cut wage costs.
What makes this outrageous is that Australian workers have already put up with more than three decades of relative restraint.
In 1974-75, 62.4 of gross domestic product went to wages. By 2007-08, that was down to 53.4 per cent.
At the same time, as the Australian Bureau of Statistics reports, the share of GDP going to profits reached 26.5 per cent in 2007-08.
“This represents the highest share recorded since 1959-60. The profits shares recorded since the early 1990s are at a distinctly higher level than those at any time since 1959-60,” says the ABS.
The danger of accepting wage restraint is just not the loss of workers’ purchasing power and pressure on domestic budgets.
Holding back on wages risks demobilising and marginalising the union movement at a time when workers need strong organisation to ensure that they do not pay the cost of a capitalist crisis not of their making.
By David Glanz