Stimulus ‘served Australia well’ despite waste

Posted on August 8, 2010

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One of the world’s top economists says the fiscal stimulus package delivered in Australia during the global financial crisis was among the best designed in the world.

A report today found there are some valid concerns about the poor value for money on the school spending part of the package.

However, Nobel Prize laureate and Professor at New York’s Columbia University Joseph Stiglitz says there will always be some waste with such programs.

He says that is preferable to the waste of human and capital resources that would have resulted if there was no stimulus.

“You were lucky to have, probably, the best designed stimulus package of any of the countries, advanced industrial countries, both in size and in design, timing and how it was spent – and I think it served Australia well,” he said.

Professor Stiglitz also issued a precautionary warning to Australia about its mining boom, before wrapping up a speaking tour of Australia this weekend.

He says the resource boom must be monitored to ensure it does not squeeze other parts of the economy.

Professor Stiglitz says Australia should respond by intervening in the exchange rate to remain competitive, and he says a fund should be set up to hedge against volatility in resources prices.

“One of the reasons why it is very important to have a mining tax to get full revenue is that you need to set up stabilisation funds in order to protect yourself against the almost inevitable period in which those natural resources prices go down,” he explained.

He also says it is a contradiction to worry about debt levels and simultaneously oppose a tax on mineral resources.

He describes Australia’s debt level as miniscule, and says it is right that Australia got into debt spending money on the fiscal stimulus packages.

However, he says the Coalition’s plan not to impose a mining tax would make the debt harder to pay off.

“It makes no sense on the one hand to worry about a very small national debt, and on the other hand not support strong measures to make sure that your country gets adequately compensated for the natural resources that are taken from below the ground,” he argued.

On a separate note, Professor Stglitz says there may be some cause for concern over Australian house prices.

RP Data figures show house prices rose by more than 10 per cent over the 12 months to June, but there are signs of moderation with the first fall in house prices in 17 months in June.

Professor Stiglitz says mining booms can cause a fast expansion of the real estate sector.

He says regulators could consider limiting the size of home loans relative to the value of houses to keep a lid on house prices.

“Looking at the market – although I haven’t looked at it in detail and housing markets can be very local – I would say that there there is the beginning of a cause of concern, and it would be probably prudent to take some actions,” he said.

Sourced : http://www.abc.net.au/news/stories/2010/08/06/2975865.htm

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