Have you ever given money from someone just for you to spend whatever you want ? Well, probably yes. Most of us would have that experience courtesy of our parent. But could you imagine if that someone is the government? Have you ever dream about your government give you free money – cold hard cash – no string attach – tax free – deliver to your bank account free of charge ?

The Money

Well, here is another reason why it’s nice to be an Aussie. On Monday, 8 December 2008 Australian Government hands out a total of A$10.4 billion dollar: parents will receive $1000 for each child, single age pensioners will get $1400, pensioner couples will get $2100 and carer will be given $1000 for each person he/she cared for. Of course certain eligibility [1. e.g: have a children and earn less than $100k p.a combine, see family assistance office website] for more detail will apply, but that’s a given.

Kevin Rudd - Australian Prime Minister

Kevin Rudd - Australian Prime Minister

What’s all about ? This is what the government called “Economic Security Strategy Payment” or just call it “stimulus package”. It’s part of government effort to stimulate the economy try to prevent Australia goes into recession. The message is clear : “Please spend the money!” – I guess it’s pretty easy to follow this specific instruction…

The Logic

The logic behind it is pretty simple. To avoid recession, the economy need to grow. This means: companies need to have good profit so they can keep hire people and open a new job. If people is under financial duress (just like a few months ago when the petrol reach the peak and interest rate for mortgage almost hit 10%), they will cut spending. If spending is cut, then less people goes to restaurant, less people go to supermarket or department store, less people buy toys, etc, etc…. In return, companies will not be profitable.

So, by giving this low to medium income earner extra cash [2. most of the eligible person will be from low to medium income earner based on Family Tax Benefit scheme] – in time for Christmas, it will be no doubt the money will mostly go back straight to the economy and should help the intended cause.

In my opinion, this move is quite a clever and brilliant one by the new leadership of Kevin Rudd as Prime Minister. I support him 100% and give top scale for this initiative.

They can afford it….

Where they can find the money from ? No, no.. not like US government that have mountains of debt… Do you know that Australian Federal Government have zero debt. That’s zilch, nothing, zip. $0.0000 money owed. And also if you have not realize it, for at least a decade, Australian government have always been in surplus budget. That’s money after money every year. Last year, the surplus hit A$17 billion mark. The same level of profit of BHP Billiton – the world’s biggest miner company. So, after spend A$10 billion giving away money, the government still have some spare money in the pocket. And that’s only from last year…..

The Pesimist

As always, they are always there… the pesimist.

As of 2007, Australia GDP is about US$773 billion [3. From http://en.wikipedia.org/wiki/Economy_of_Australia], so with A$1=US$66c, this  AU$10 billion equals to around US$6.6billion or only 0.85% of last year GDP. Their first question: is it enough to stimulate the economy ?

$1000 cash for you

$1000 cash for you

Maybe not. But who said this will be the last time ? The government has indicated that there will be additional ‘package’ on the way targeting different segment. But the most important impact of this move is confidence. It gives the badly needed confidence to the average people that somebody cares (after all those mortgage stress)… Remember if there is no confidence, people will not spend their money and the economy will slows down significantly.

Another pesimist whinges about: why not spend the money on infrastucture such as hospital, road, transport, etc…  My take is: those kind of investment is long term and will not create the sudden impact on confidence. Be honest, which one give you more confidence that the future will be alright: a new hospital being built around the corner or when someone slap you $1000 cash on your face and say “go buy whatever you want”….

The other complaint is that it will create unreasonable spending. Yes, it true some pub have order extra pallete of alcohol for this week, or department store make special marketing campaign for this event. But that is exactly the goal: for people to spend more than they use to be to stimulate the economy. Furthermore, if government being blaimed to make people being overdrink, that’s exactly when the problem occur. Being overdrinking or overspending is totally 100% your decision. Each individual decision. Not the government, not your neighbour. Everybody need to be responsible for his/her own act….

The last category of the whinger is, of course, the one that feel they are being left out. People that earn $150,000 per year: some argues they pay tax too why don’t they denied their share? My message is: “where is your gratitude ? You can earn more than $100k a year, that’s a bless, that’s already your gift! A lot of people is willing to swap with you. Yes, you work hard too, but you have got your reward!” Isn’t it?

Conclusion

No matter what people say, if you have a little bit of awareness, you will know that the government is doing a good thing. It’s simple, it’s building confidence and yet pretty effective. We should all be proud of this government (No, I did not vote for them last year). It’s really is: if there is a country that you better be during this tremendous financial storm and global recession. It should be in Australia!

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