As much as Rudd hates to admit it, Australia remains a market-based economy. So to gather an early judgement on Rudd’s $85 billion multiple ‘stimulus’ packages, we shouldn’t look to journalists or even economists, but the market. Below is a graph displaying percentage changes to the ASX 200 and NZ 50 over the past year. You’ll notice a growing divergence between the two indices around August and then in November, when the ASX 200 went south and the NZ 50 started to level out.
This movement is incredibly significant. It is the first time ever that the NZ 50 has out-performed the ASX 200:
So it seems the market’s verdict on the many packages announced over the last eight months is, they are bad for markets. Now remember that $85 billion could soon grow by another $60 million, with Rudd having lifted Commonwealth borrowing restrictions to $200 billion. Markets know this, but it has had no effect. The massive growth in Commonwealth debt will likely hurt markets by drawing capital away from stocks and into Federal bonds to fund programmes that have little to do with getting markets and the economy going north. Rudd’s changes to deposit insurance and his botched changes to short-selling regulations have also compounded the situation. The more consideration I give to the issue, the more I realise that Rudd has actually provided incentives for people not too invest in the markets. This will ultimately hurt the capacity of the economy to invest in capital, jobs and therefore future growth.
By contrast, New Zealand has adopted a set of measures which aim to support business, markets and therefore the economy. I’ve previously covered this article from the WSJ, but here it is again:
While the U.S., Australia and Japan spray cash in every direction to “stimulate” their economies, New Zealand has a novel idea: Why not grow one’s way out of recession?
….a package of regulatory reform and tax initiatives aimed at making it easier for companies to do business…provisions to allow companies to retain their taxable income for longer periods, reduce penalties on underpayments…simplified tax-deduction rules for business-related legal expenses…harder for small companies to be sued in certain courts…a series of income-tax cuts and eased unfair dismissal laws….streamline the Resource Management Act, an environmental protection statue that has blocked or slowed business developments across the country….
If Rudd cannot deliver in the next six months – as reflected by dramatically improved market performance – then we will be able to say with this measure alone, that his many packages have a been a definitive failure. It’s heading that way already.