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Government economic stimulus fail?

Mark Fletcher
May 23rd, 2020 · 41 Comments

In March, the Prime Minister and Treasurer announced a $130B stimulus to the economy. They said the money was needed and they devised JobKeeper as the delivery platform.

Yesterday, the Treasurer said that employer data mistakes meant the spend would be $60B less.

The problem with the narrative from the government is that employers did not get to provide the government any data until weeks after their $130B announcement.

The timing of itself uncovers the government in a lie.

When they said the economy needed a $130B stimulus I believed them. I think that need remains.

The government should use other setting for JobKeeper or other platforms to feed the remaining $60B into the economy. History has shown that mo new in the hands of those with immediate need flows fastest and best.

Now, to those saying it’s borrowed money, I agree. Franking credits are borrowed mooney too, $6B a year. The economic need justifies the spending of the $60B JobKeeper shortfall this year.

19 likes

Category: Social responsibility

41 responses so far ↓

  • 1 David // May 23, 2020 at 10:19 AM

    Well said!

    7 likes

  • 2 Peter // May 23, 2020 at 10:23 AM

    I couldn’t believe it when I heard the announcement yesterday. Their argument does not stack up. I filled in the JobKeeper form more than 2 weeks after they said they would provide 130 billion. I am surprised journalists are not asking more questions about the timing. In my shop people have been spending their stimulus money so it is working. More please.

    6 likes

  • 3 Graeme Day // May 23, 2020 at 11:16 AM

    We will know all about it when we have to repay the deficit in tax. the less the Govt. spends and still gets the great results the better.

    5 likes

  • 4 Peter // May 23, 2020 at 11:29 AM

    The Government claims to be the better economic managers with now:-

    1. This error.

    2. The doubling of Australia’s debt since they came to power.

    2 likes

  • 5 Steve // May 23, 2020 at 12:17 PM

    Yes I agree the the announcement of the $130B stimulus does not appear to coincide with the release of the April JobKeeper Monthly declaration form only 19 days ago so the responses yesterday by the Federal Treasurer are strange and confusing

    Having said that it is great that the we now appear to be $60 billion ahead of forecast. I fear however that the economic downturn has a little way to go yet though. Tourism and hospitality have been absolutely devastated with no sight of light at the end of the tunnel yet for these sectors. I also think the housing construction industry is yet to feel its pain. God help us if we see a second wave.

    Both the government and the economy are going to need every cent of that $60B to keep the economy moving.

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  • 6 Michael // May 23, 2020 at 12:46 PM

    The government did say we need this level of stimulus. Their counting error should not be used by them to now not stimulate to the extent their experts said was needed.

    They should be looking for further reasonable channels through which to stimulate. There is no doubt that those channels will not, however, be appealing to the conservatives, unfortunately.

    6 likes

  • 7 Peter // May 23, 2020 at 1:19 PM

    A pandemic is truly a black swan event, no one could predict it. However, imagine if instead of successive governments kicking the can down the road with more debt and asset bubbles, we had undergone real reform. If we had allowed the natural cycle of recessions to take place. It would have cleaned out all of the zombie businesses. Instead of people relying on property and the share market they would have had to adapt, be creative and build sustainable business models. Now the bubble is so big, too big to fail. Hence the scramble for Jobkeeper and Jobseeker. But what happens after the 6 months, another 6 months and then another? The sharemarket seems to think so, government debt, helicopter money and negative interest rates….whatever it takes. Take no notice of the one trick poney Phillip Lowe at the RBA. When he says negative interest rates are highly unlikely, that means they are just around the corner.

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  • 8 Graeme Day // May 23, 2020 at 2:03 PM

    Peter, you are 100% spot on!

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  • 9 Simon // May 23, 2020 at 4:09 PM

    Mark is right on this. So is Michael. The politicians said the $130 billion spend was necessary. That is still the case. The government borrows for so much other welfare. This is a reasonable investment if they get the money into the hands of those who are most likely to spend it right away.

    1 likes

  • 10 James // May 23, 2020 at 6:54 PM

    Sorry. Franking Credits is borrowed money.

    Explain how that works exactly.

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  • 11 Mark Fletcher // May 23, 2020 at 7:47 PM

    Franking credits cost the budget around $5B a year. The government borrows to cover budget cash-flow shortfalls. Ergo…

    1 likes

  • 12 James // May 23, 2020 at 10:59 PM

    I’ve never understood the Franking credits debate.

    It seems to me it could be simply solved by Companies retaining the company tax they would otherwise have paid, and paying unfranked dividends taxable in the hands of the shareholder.

    Problem solved. No franking rebates required. The Government would collect 5B less company tax and have to wait till the shareholders paid out their liability, but it would be cleaner and there would be no debate about whether shareholders with a zero marginal tax rate should have the tax credits refunded.

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  • 13 Colin // May 24, 2020 at 6:34 AM

    The reason given for the apparent $60b error is a blatant lie.

    Cast your minds back to early 2020 and Scomo was toast after his absence in the bushfire crisis.

    To quote Churchill ‘never let a crisis go to waste”.

    Covid19 was and is the crisis ScoMo needed to fool people into believing he is the man for the moment.

    So we have a PM who was absent and incompetent for the 1st crisis, who then lies and exagerates on the 2nd to depict him as the saviour.

    Winston would understand. Not so sure about the voters if the economy does not bounce back.

    Nobody likes a liar.

    2 likes

  • 14 Graeme Day // May 24, 2020 at 7:55 AM

    Colin,
    Pinning the tail on the Donkey, as you have done is a game all politicians and opposing players play.
    Scomo’s motivation may not be for the purpose of self resurrection as you state. It may well have been intense action with the mixture of State and Federal, Upper and Lower House representatives.
    The National Cabinet as it is called presented the final “call” to arms.
    The end result is Churchill’s “Our Finest Hour”
    Churchill was good in a crisis He even created some as well as rallied the people in a single united direction fighting a known enemy. In peace time he lost the will of the people’s support as there no longer was a single crisis even though he tried deperately to create one -The Iron Curtain comes to mind.
    Scomo is not Churchill, but he was/is the “man for the moment”
    Whilst the moment was a heated single directional aim fighting an intangible enemy with heaps of “our” money nobody objected everybody wanted more and for their own cause. The Cabinet made the final call. Victoria put out its call NSW theirs as dis all other States W.A. etc all different in execution however the message and financial support was’is the same.
    Time will tell whether it has worked or not however it will never pinpoint just how much money or effort was/is needed to stabilise this unprecedented health threatened and financially threatening remedy.
    We will all be much wiser afterwards, whenever that will be.
    Arguing politics and/or Religion is futile as time has proven.

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  • 15 Mark Fletcher // May 24, 2020 at 8:08 AM

    “Scomo” is an image softening marketing term he wants people to use. Every time someone uses that they are sucked into his game. His name is Scott Morrison, the Prime Minister. he’s not a brand.

    As to the actual issue, the government has lied about the reason for the $60B error. There is no evidence supporting their claim of how it came about.

    The economic need for $130B in stimulus in the hands of everyday people remains. If they underspend by $60B, let’s see how things are going by Christmas and through 2021.

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  • 16 Mark Fletcher // May 24, 2020 at 8:59 AM

    James, I agree. The way it is now, taxpayers are funding ‘refunds’ to people for refunds not earned. We are the only country in the world giving out this middle and upper middle class welfare. Billions of dollars a year.

    1 likes

  • 17 Jason // May 24, 2020 at 9:11 AM

    Where do you propose the 60bn goes then? To continuing JokKeeper even though people are going back to work? How does that work? Or are you proposing that the money they said the existing program should cost should be spent because they said it would cost that much, but spent on something else because it didn’t actually cost 130bn?

    The worst of the lockdown is (hopefully) over, what good does extending the existing program by 60bn do?

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  • 18 Mark Fletcher // May 24, 2020 at 9:36 AM

    I’d ease the criteria for casuals from 12 months at a business to, maybe, 8 months or six months for those regularly doing 25 hours a week or more.

    I’d specifically ensure that those in the arts where casual short term employment is the standards are covered. I’d means test this to ensure those in genuine need can access the money.

    I’d create a support package for international students.

    In these three examples the government would be putting money in the hands of people who would spend it through the short to medium term and that more immediately benefits the economy.

    In terms of the easing of the lockdown, there is evidence that there are fundamental challenges ahead. For examples, building applications have collapsed as have new car purchases. These two sectors speak to consumer confidence. Coming out of the lockdown is yet to be reflected in an improvement in consumer confidence.

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  • 19 Peter // May 24, 2020 at 12:23 PM

    Consumer confidence won’t improve until unemployment improves. We would need a “snap back” to get back to where we were and that seems unlikely. For years we were told that increasing private debt didn’t matter as unemployment was at record lows. Unless we can reduce unemployment our economy is badly exposed to a contagion of debt defaults.

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  • 20 Graeme Day // May 24, 2020 at 12:54 PM

    Peter,
    That’s probably a good cause and reason to keep the saved 60 Billion.
    Put it into business incentive certainly not the overseas student issue which is one of take and go.

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  • 21 Mark Fletcher // May 24, 2020 at 12:57 PM

    The $60B is not a saving.

    I suspect that, a year or 2 down the track, the $60B will be small compared to what will have been needed.

    Tourism, construction, education, primary produce and 4 high employing sectors facing varying challenges, 4 sectors where paid from economic jolt is not always immediate.

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  • 22 Graeme Day // May 24, 2020 at 2:56 PM

    At this point in time it is money not spent or re -allocated where it will be may be if and why is purely conjecture. For any money to be repaid it has to come from income. This is everyone’s responsibility and more so it the Governments.
    Government thieves money from its people under the name of Tax and re distribites it to re election based areas.
    This has been proven time again. the opposition matches them we me tooism plus more.
    If the spending is more than the productive earnings they get from taxing the profitable businesses then the Country starts to go backwards. Do it in one’s own business and one goes broke.
    Priorities will rise in orders of AB&C and be reset from C’s to A’s as they occur. None of us know these priorities at the moment -the money held – not spent unnecessarily in other words saved will I am sure go to the next priority but whatever that is it won’t please everyone such is democracy.

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  • 23 Peter // May 24, 2020 at 3:43 PM

    Yes Graeme more on middle/upper class welfare or sporting clubs or maybe even the correct and acceptable churches to the government.

    0 likes

  • 24 Jason // May 26, 2020 at 12:38 PM

    Are franking credits 30bn or 5bn? You’ve said both…

    0 likes

  • 25 Peter // May 26, 2020 at 12:43 PM

    The Beauty of Franking Credits is that you can have a Tax refund without actually paying any Tax.

    We are the only Country that does this. Some of my Customers and Family calls it Magnificent achievement.

    0 likes

  • 26 Mark Fletcher // May 26, 2020 at 12:54 PM

    Thanks Jason $6B. It bounces around between $5B and $6B. Middle and upperclass welfare – for doing nothing.

    0 likes

  • 27 Graeme Day // May 26, 2020 at 2:16 PM

    it is also for all shareholders- Superannuation-Workers-Unions At this point in time a lot of Compamies are paying reduced dividends if not any dividend.
    Labor lost an election by trying to have it scrubbed.
    The people had their say.

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  • 28 Mark Fletcher // May 26, 2020 at 5:09 PM

    Yes, people are selfish.

    4 likes

  • 29 Steve // May 26, 2020 at 7:29 PM

    Franking credits are good for our channel. Let’s not bash them. For those of us using a corporate structure franking credits permit us to avoid double taxation when we withdrawal from the company profits on which we have already paid tax

    For those of us who are retired and earn no other taxable income yes franking credits again reduce the tax payable on our self funded retirement income. I don’t see this as selfish.

    Remember self funded retirees have paid taxes all their working lives on accumulating their share portfolios. Remember also that that any investment income derived reduces their aged pension entitlement. Remember capital gains tax will eventually be paid on the disposal of the shares. What’s not fair?

    Franking credits are not borrowed money. They are simply a credit to shareholders on their share of corporate taxes paid. It’s time to stimulate the economy not to increase taxes.

    3 likes

  • 30 Graeme Day // May 26, 2020 at 10:06 PM

    Very well explained Steve, I totally agree.
    Saving for the future and seeing the punitive measures to pay for some one elses future doesn’t make sense especially when they need to spend their savings to exist.

    0 likes

  • 31 Mark Fletcher // May 27, 2020 at 6:53 AM

    Steve I am not aware of any research indicating the benefits of franking credits with the newsagency channel.

    Only 4 of the 34 OECD countries, Australia is 1 of 4 that calculate franking credits in this way. But Australia goes further and provides a cash refund on any unused franking credits.

    The approach in Australia provides a financial benefit that is a form of welfare which might be okay if the government was as generous with welfare to other co-horts.

    I can think of many economically better ways to distribute $6B in welfare.

    0 likes

  • 32 Graeme Day // May 27, 2020 at 7:56 AM

    This is a circular argument. The Franking Credits relate to an income advantage gained by investment. It’s not welfare. It’s a Tax deductuction. Countries all over the World have different deductions for other reasons.
    Besides with interest rates so low and the Self Funded Retirees not getting any pension at this level if all of these investments were depreciated the Pension demand would be increased. With COVID 19 Banks have already reduced their dividend.
    As you said People are selfish yes, you are right, it’s the virtue of selfishness that creates survival.
    or disaster depending on what the the bigger picture result is.

    2 likes

  • 33 Mark Fletcher // May 27, 2020 at 9:13 AM

    I disagree Graeme. It’s welfare, unearned, unjustified, expensive.

    2 likes

  • 34 Graeme Day // May 27, 2020 at 11:36 AM

    I will have to agree to disagree. It’s not welfare the Frankinjg Tax is paid out of Company Profits i.e. NAB CBA Telstra so the reciprient gets the dividend Fully Franked.
    Welfare is a hand out for people who don’t contribute who don’t have a means for support. This is a Business deduction and like many deductions some suit some don’t but it comes off direct earnings not from general tax.

    3 likes

  • 35 Colin // May 27, 2020 at 8:07 PM

    Graeme,

    You make it sound like Companies fund the Franking Credits. They don’t. A Company’s position is not altered by the credits claimed by the shareholders. It is the Government tax income that changes. It is an allocation of Government revenues to shareholders.

    It’s welfare for investors. Same with negative gearing.

    0 likes

  • 36 Graeme Day // May 27, 2020 at 11:31 PM

    Colin.
    That’s your take. I didn’t MAKE it sound like anything you can and did interpret what you like and please check with proper process what I said. the quotation of
    Welfare – “the statutory procedure of social effort to promote the basic physical and material well being of people in need”
    You make it sound like what you want it to be.
    I got my info from ATO and an investment Accountant.

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  • 37 Mark Fletcher // May 28, 2020 at 6:51 AM

    The franking credit is paid by the us, through the Australian government. We are the only country in the world doing it as we do, giving someone a tax refund against expenses they did not incur.

    It looks, feels and smells like welfare. Given the mechanism, it is highly targeted to a politically valuable co-hort.

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  • 38 Graeme Day // May 28, 2020 at 8:10 AM

    100% paid foir by the Company distributing the dividend.
    Not Welfare not paid by us paid from the Profits earned by the Company on behalf of the investor.
    definitions of bioth in looking up simle Google spells both these things out.
    The spin with this is unbelievable.
    We invented the Victa Mower as well so what’s being the first Country to show innovation got to do with it.
    Personally shares are not my game however facts are facts.

    0 likes

  • 39 Mark Fletcher // May 28, 2020 at 8:51 AM

    Graeme, the franking credit payments are made by the government, $6B a year. That information is in the budget papers. That is not spin.

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  • 40 Steve // May 28, 2020 at 8:56 AM

    When Hawke & Keating introduced the dividend imputation system back in 1987 it was viewed as world leading tax reform. It still is.

    The removal of franking credits is an increase in tax. This would result in higher taxes for those in our channel and for many of our customers. This would hurt our channel. The age demographic most effected by their removal also tend to be our most loyal customer base.

    This issue and these voters cost labour the last election. Any political party would be awfully brave to try again.

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  • 41 Mark Fletcher // May 28, 2020 at 9:01 AM

    Steve, taking away a payment that is a gift is not an increase in tax. However, I understand how it can be politically played as this.

    It’s a highly targeted benefit to a politically valuable co-hort. It is an unfair use of taxpayer funds. Not the only unfair use by government, but an expensive one.

    I suspect that if every Australian spent an hour or two fully understanding how it works, who benefits and how it is funded, a majority would vote against it. However, as politics goes today, the truth all too often is not put in front of voters before they cast their votes.

    This thread is tiresome. I get you have your view and Graeme has his as do Peter, Colin and myself. We’re not going to agree. I’m not going to change your mind. You are not going to change my mind.

    0 likes

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