In the time when most neo-liberal capitalist economies are suffering from a recession, arguments appear on whether to cushion the effects of it, or simply wait for the peak of the recession before taking any recovery actions. Australia has chosen the former, and going ahead with not one, but two stimulus packages within four months. This report will look into the second stimulus package, also known as the February 2009 stimulus package, worth A$ 42-billion. A brief outline of the features will be presented and an in-depth evaluation of this package will be discussed, based on both theories and historical experiences. However, as the handing down of the expansionary fiscal policy is still underway, one will not exactly know the impacts it will have on the economy, both in the short and long run. But evidently, any steps undertaken by the government is in the hope that it will soften the impact of the recession, if not to completely create a recession-proof economy. Only time will show the effects of this stimulus package.
The current global economic crisis started to appear in late 2008, with the collapse of several global investment banks. However, it was in 2007 when the sub-prime mortgage market in the US collapsed, triggered the chain of events that led to the current crisis. As of October 2008, Australia has felt the heat, with the value of its currency taking a freefall since a high of US$0.9849 earlier in July. In response to these indications, the Australian government took no chance in preparing for this recession. In October 2008, the Federal treasurer announced a cash stimulus package of A$10.4-billion, but this was deemed insufficient, and subsequently in February 2009, it announced a further A$ 42-billion stimulus package. This is the biggest budget stimulus package Australia has ever seen, and it is therefore important to understand the features and the possible outcomes of this stimulus package. This essay will look into the key features of the second stimulus package in more detail. In addition to the features of this package, a discussion of the general fiscal policy and its theory will also be presented. However, as this is a current issue, its outcomes will not be seen until months or years to come and consequently, one can only contemplate on the effectiveness of this stimulus package in which it will be discussed below.
Features of the Stimulus Package
A fiscal policy is “a government policy relating to government expenditure, transfer payments and tax structure” (Dornbusch et al, 2008, p. 185). The February 2009 A$ 42-billion stimulus package announced by Kevin Rudd contained six key features, which relates to each of the feature of a fiscal policy. The first A$ 12.7-billion will be immediate, and will go to taxpayers, with each taxpayer, depending on eligibility, will be able to receive one or more A$ 950 tax-free payments (Gittins, 2009). This forms the transfer payment part of a fiscal policy, for the reason that the government hands out money to individuals and does not receive anything in return. The next four key features relate to government expenditure, which is the total expenditure of government spending, and includes both government purchases and transfers. These are spending for “fixing up schools and blackspots, repairing roads, building new social housing, and on grants to help make homes more energy efficient.” (Gittins, 2009, para. 3). It will account for nearly two-thirds of the A$ 42-billion stimulus package, or approximately A$ 28-billion, and this will be distributed over the next two to three years. The final feature of this stimulus package will relate to the tax structure part of the fiscal policy, and it will be in the form of the A$ 2.7-billion tax break for small businesses. This feature is also included in the stimulus package as a hope to create jobs and demand for the next two to three years (Coorey, 2009).
Effectiveness of the