Doubts grow over govt's stimulus package

Doubts are beginning to surface over the effectiveness of the federal government's
$10.4 billion economic support package to steer the economy through the global
financial crisis.
New data released on Monday showed consumers continued to demonstrate a reluctance
to spend during the September quarter, despite the introduction of more than $7
billion of tax cuts, softening petrol prices and the first cut in interest rates in
seven years.
Retail turnover only grew by a seasonally adjusted 0.1 per cent in the three months
to September, a quarter of what economists expected after negative retail spending
growth in the first half of the year.
"With the July tax package unable to properly stimulate spending, there must be some
doubt about how well the December fiscal stimulus package will work," TD Securities
senior strategist Joshua Williamson said.
Mr Williamson said that while the stimulus package, combined with even lower petrol
prices, may be able to lift the pace of spending growth somewhat, the stimulus was
only temporary.
"The risks are that spending growth would correct in 2009 from a weakening labour
market," he said.
There are still two large official interest rates in October and November to take
into account - and possibly a third next month - that may spur spending.
But the federal opposition says this is of little benefit if interest rates on
credit cards don't budge.
"With credit cards at over 19 per cent, you cannot expect shoppers to go out and
spend before Christmas if they're going to be racking up bills on their credit
cards," opposition finance spokesman Joe Hockey said.
"It's not good enough that the Reserve Bank has dropped official credit rates to
5.25 per cent and yet credit cards are still up over 19 per cent."
There is a growing number of economists now expecting the Reserve Bank of Australia
(RBA) to cut the cash rate by a further 75 basis points when its holds it December
board meeting, the last before it meets again in February.
"You can lower official interest rates all you like, but if credit card rates fail
to move at the same pace then everyday Australians aren't going to see any benefit,"
Mr Hockey said.
"Injecting money into the economy to stimulate consumer spending is of limited value
if the cost of consumer credit remains so high."
Finance Minister Lindsay Tanner said the government was prepared to implement a
second economic stimulus package, but only if the global financial crisis worsens.
"The issue of stimulating economic activity is going to be with us for some time,"
Mr Tanner told ABC Radio.
"I certainly hope there won't be a need for further stimulatory action but we can't
rule that out."
The government will hand out $4.8 billion to pensioners and carers next month and
$3.9 billion to low-income families as part of its stimulus package.
The $1.5 billion set aside for an increase in the First Home Owners Grant is already
being distributed.