Australia's Bailout Black Hole


10-24-08, 9:33 am

Original source: The Guardian (Australia)

The federal government pressed on with its startling splurge of taxpayers’ money last week with a range of one-off payments to boost spending and revive a stalling economy. The $10.4 billion package joins the $8 billion committed to buy residential mortgage-backed securities on behalf of small banks and non-bank lenders scalded by the meltdown of the global financial system. It follows the pledge to guarantee the estimated $700 billion that Australians have deposited in banks, credit unions and building societies.

This time the Rudd government has flagged: • $1,000 per child Christmas bonuses • $21,000 first home buyers’ grant for?newly constructed dwellings • $1,400 one-off payment for single pensioners • $21,00 payment for pensioner couples

But when the one-off payments are spent or used to pay off some of their debt, the recipients will essentially be back where they started. The home buyer’s grant will most likely be absorbed by a corresponding surge in house prices.

While all this is going on, the Prime Minister and his Cabinet colleagues insist that the 'fundamentals' of Australia’s banking system and the economy are sound and that the country should ride out the worsening global economic storm with relatively little damage.

There is not much to base this confidence on. The federal opposition is pressing the government to produce the analysis and forecasts that justify the staggering amounts now being spent but which have been withheld from areas of urgent need like health, education and a boost to the age pension. The Coalition is trying desperately to distinguish itself from the Rudd government by demanding the Treasury documents but it, too, is committed to the big spending strategy. The Howard government was the master of the electorally popular one-off cash payment.

Another 56,000 new training places are to be created. While the measures are expensive and will be well received by the people and households hit by spiraling prices, they will not provide a sustained lift in living standards. Substantial ongoing commitments are being taken off the table. Finance Minister Lindsay Tanner, who heads up the Cabinet’s cost-cutting razor gang, has refused to re-commit the government to the publicly-funded paid maternity leave scheme announced earlier in the year to great fanfare.

'I can’t speculate on where our decision-making will take us on that issue or any other major possible initiative,' Tanner told the media over the weekend.

The economy will again be confronted with the problem of the declining purchasing power of Australians. Another boost may be required but the reserves for that to happen are being used up. The Budget surplus has been halved by the latest package. The rest will be eroded as tax revenues head south as the economy slows and workers lose their jobs.

'Fundamentals' and the 'real economy'

At the same time the Prime Minister has been warning of a period akin to an 'ongoing national security crisis', he has taken to the world stage to recommend to others the Australian example of strict regulation of the banking sector.

This is extremely rich. Until very recently, when neo-liberal economics were more popular or at least less on-the-nose, Kevin Rudd and other Labor heavyweights would cite the Hawke/Keating governments’ deregulation of the finance sector as their greatest achievement and their biggest contribution to the development of the modern Australian economy. They used to taunt the Coalition for not having had the courage to float the Australian dollar on the currency markets, which is what former treasurer Paul Keating did. Rudd & Co don’t talk like that any more.

In fact, Kevin Rudd spoke in his recent address to the National Press Club about the failure of 'extreme capitalism' and the need to rein in excessive executive salaries in the finance sector. 'APRA [the Australian Prudential Regulatory Authority] will now develop a template, not just for this nation for the future but also for examination by the G20 and other international institutions, of how excessive executive compensation can be reined in,' the PM said.

Part of the plan involves forcing financial institutions that reward executives for taking excessive risks for high, short term reward to carry larger amounts of capital in reserve. The plan will, most likely, never get off the ground, and will fail to arrive at a definition of 'excessive risk.' The rhetoric plays to the outrage in the community at the amounts paid to corporate high flyers, while not proposing to do anything about it in reality. It is at odds with his praise elsewhere for the discipline of the banking sector in Australia compared to the recklessness of the moguls in charge of 'extreme capitalism' elsewhere.

Rudd speaks often about the 'fundamentals' of the Australian economy to explain why he believes Australia is in a significantly different situation to the US. However, most of the fundamentals are the same. Australia has experienced a housing bubble — the average Australian home now costs over seven years of the average Australian wage.

Manufacturing is in decline. Ford is shedding hundreds of jobs and Holden workers are taking enforced holidays as sales slump. Manufacturing jobs are heading overseas. Australians’ living standards are only being maintained by record levels of personal debt. The average Australian wage earner now spends over nine percent of his/her salary on interest payments alone. Trade unions have been hemmed in and membership forced into decline. The wages share of GDP has shrunk and the profits share has grown.

Rudd also refers to the need to take bold action to prevent the effects of the global financial crisis being felt in the 'real economy' where goods are produced, bought and sold. Unfortunately for working people, this has already happened. As mentioned, jobs are already being axed.

Lindsay Tanner expects the official jobless rate to burst through the five percent barrier fairly shortly. Nobody in authority is prepared to estimate how high unemployment might go. Workers have taken a hit in their compulsory superannuation funds — real dollars meant to support workers in their retirement.

The net worth of household assets fell 4.9 percent in the first six months of this year.

The prospects for the Australian economy built on neo-liberal lines over recent decades do not look bright. With tariff barriers being lowered and manufacturing winding down, the country is dangerously reliant on the export of mineral resources.

Orders for commodity exports to China are now down as are commodity prices. Workers are already paying for the crisis in capitalism through reduced living standards and the spending of their tax dollars to bail out the system that exploits them. There is an urgent need for a united approach in the labor movement to safeguard their jobs, the value of their wages and to make the bosses clean up (and pay for) their own mess.