We need a $30bn stimulus package – and here’s how it should be spent: Kohler

The government should announce a new stimulus package of at least $30 billion, preferably $40-50 billion, and the money should not be wasted on tax cuts and cash hand-outs as the last $10 billion was.

This should be seen as an opportunity to quickly rebuild the national infrastructure, not to get a kick in the polls with tax cuts. Water, broadband, ports, railways, sustainable energy: there’s no end of things to do, and everyone has already agreed long ago that the task is urgent.

A bureaucracy has been set up to determine priorities – Infrastructure Australia – run by 11 people who know a thing or two, plus an ‘infrastructure co-ordinator’, Michael Deegan, who knows plenty.

There’s also an RBA bank account through which to channel the money called the Building Australia Fund, which already has $20 billion in it.

So what are we waiting for? This is an opportunity to begin the greatest infrastructure building program Australia has ever seen, a chance to set us up for the next 100 years.

Last night Germany announced a $A100 billion stimulus package (2% of GDP) and Japan went for $A80 billion (1.1% of GDP). President Barack Obama is pushing for $US816 billion (5.7% of GDP), although the figure seems to rise every day.

Nearly half of the Japanese package will be thrown away on a cash handouts that will be mostly saved, not spent. Germany has “modest” tax cuts in its package, but it’s mostly infrastructure spending.

President Obama’s American Recovery and Reinvestment Act, 2009, is a hotchpotch of some infrastructure spending (less than half of the total) and a lot of tax cuts and social programmes.

Most of the world’s political leaders are seeing the financial crisis and recession as a chance to borrow money to bolster their sagging popularity or to bring in some spending programs that are ideologically dear to their hearts before they get booted out.

The unemployed can stand in line behind the voters and the vested interests.

The rich, the middle-classes and the poor are all looking to do something about their balance sheets, which have been hammered by the share and housing market collapses. Any money they get from now on will be saved.

If governments want to boost employment they should not spray cash around with tax cuts and handouts – they should ensure that every dollar of stimulus goes towards paying a wage. And the best way to do that is to directly spend the money on infrastructure.

So how much should the new Rudd package be?

Well, last year’s $10.4 billion was less than 1% of GDP and was mostly wasted on being saved or on Christmas presents for the kiddies. That was nice, and it didn’t harm Kevin Rudd’s popularity, but it did little more than give a brief fillip to the nation’s retailers and delay the inevitable sackings for a month or so.

That pre-Christmas package did nothing for medium-term employment, and even less for longer-term jobs.

The government now needs to get serious about infrastructure: boost the Building Australia Fund to at least $50-60 billion and tell Sir Rod Eddington and Michael Deegan at Infrastructure Australia to get on with it.

The Rudd Bank announced last week, where the government is putting money into a fund to lend to commercial property firms, is possibly worth doing if it stops a healthy developer going broke because it can’t get bank refinancing – although I doubt whether that would actually happen.

But it’s not okay if it results in someone getting funding for a new shopping centre or office building we don’t need.

We have enough shops and offices already; in fact many of them will be sitting empty for a while. If the new Kevin Rudd Bank finances more commercial property he might as well stand on the lawn of Kirribilli House and throw money into Sydney Harbour.

It’s infrastructure Mr Rudd, nothing more. Not tax cuts, handouts, shops or offices, but railways, irrigation, desalination, solar energy, and better ports.

What’s more, regulatory hurdles need to be removed. There have been far too many difficulties getting infrastructure built in Australia – just look at the problems John Brumby’s Victorian government has had deepening the shipping channel.

We need to focus.

This article first appeared on Business Spectator.