Rudd's plan a dead weight on the future

On Monday, Prime Minister Kevin Rudd told a news conference the government would "move heaven and earth" to support the economy.

That's a tall order, even for a practicing Christian, but the Prime Minister says this is what he's trying to do.

Recession has seen Australia's annual tax revenues sagging by more than $30 billion.

Even so, Mr Rudd has now committed more than $80 billion of taxpayers funds -- almost 10 per cent of our national income -- in give-aways, subsidies and spend-a-thons.

These are designed to re-ignite the economy which he says has been strangled by "free market fundamentalism, extreme capitalism and excessive greed".

Mr Rudd's measures involve taking money from future generations and from private investors -- most of whom won't realise that their pockets are being picked -- and giving it to people who will notice and be grateful.

There is a naive belief that this robbery of Peter will give Paul funds to spend, thereby kick-starting the economy.

Doubtless this belief is reinforced by hopes that the recipients will be grateful and reward Labor with another term of office.

Mr Rudd would, however, also harbour fears that a year from now with a recession deepening, voters might start to ask if the Government knows what it is doing.

Some people might even begin to wonder whether the bail-outs and give-aways might have been harmful.

They would be right -- the government's policy settings spell disaster.

If governments spend taxation money or borrowings on infrastructure -- roads, rail, dams, ports etc -- the spending brings a return.

That return means increased productivity and higher incomes, which allow loans to be repaid without damaging future living standards.

The return from government infrastructure spending is highest when the infrastructure is in greatest need of repair or expansion.

So it is especially valuable after a war, for a newly populated area or in a region where new activities are planned.

Though less valuable when decent facilities are in place, as in Australia, government-financed infrastructure spending may still be worthwhile.

But there is very little of this in the Rudd packages.

Of the $80 billion in spending, only $3.6 billion is for roads and investment support, spending which offers a fighting chance of providing a return to the future generations who are paying for it.

The rest -- 95 per cent of the total -- is for low-return social infrastructure like school refurbishments, to rescue superannuation funds' shopping centre investments, and as gifts to those on low and middle incomes.

In this context, the Rudd packages have to be recognised for what they are -- a deadweight cost to the future which will offer negligible improvements in the economy's productivity.

The Prime Minister has said he wants to rescue capitalism from the extremes of the free market.

Unfortunately his prescription for doing so is an orgy of government spending that would cause even his illustrious predecessor, Gough Whitlam, to blush.

Whitlam too thought he could spend Australia out of a world recession.

That experiment ended in tears for the Australian community, and so will Mr Rudd's.

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