Forum » Topics » Current and Future Impacts of the 'GFC' with The Hon Alan Stockdale

Current and Future Impacts of the 'GFC' with The Hon Alan Stockdale

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Is the Australian Governments $42b stimulus package good economics and sound policy? What will be the impact on your business? What will be the impact on future generations....?

"The Australian Government has put too much money into pump priming consumer spending, misdirected its infrastructure spending and will achieve little in terms of preparing Australia to benefit from recovery when it eventually starts...." (The Hon Alan Stockdale 17 February 2009)

Talk to The Hon Alan Stockdale about the Global Financial Crisis and the impact it will have on current and future generations

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76 Responses

  1. Dominique Fisher said Hide on 18th Feb 2009, 11:31am:
    is the GFC really as bad as everyone says it will be ?
    1. Alan Stockdale said on 18th Feb 2009, 11:33am:
      Yes, it is a very serious situation which is impacting the whole world - we can see that it is slowing demand, causing job losses, closing businesses in countries as disparate as the US and China.
  2. Chris Berg said Hide on 18th Feb 2009, 11:36am:
    Alan, state governments will be the primary beneficiary of the infrastructure spend - do you think they are in a position to spend it wisely?
    1. Alan Stockdale said on 18th Feb 2009, 11:45am:
      State governments will inevitably be involved but they have a long history of inefficient investment. We have a desperate need for projects that improve national productivity in areas like roads, ports, energy and railways but these projects generally take a long time to get going. I think the states need to involve the private sector not only in delivery but in setting priorities.
  3. Julie Novak said Hide on 18th Feb 2009, 11:38am:
    Would you prefer tax cuts to spending, or will neither be effective in the current environment?
    1. Alan Stockdale said on 18th Feb 2009, 11:47am:
      There is a role for both. The advantage of tax cuts is that people tend to be more ready to spend ongoing additions to their income and tax reductions can both cut business costs and provide incentives for investment and recruitment of new workers. Pump priming consumption spending is less likely to achieve long term job creation or to build a platform for future increases in Australian productivity and competitiveness.
  4. Sophie Garland said Hide on 18th Feb 2009, 11:40am:
    I just purchased a new property. I'm really concerned that I'm still going to have a job in 6 months time. How will the government's handouts help me?
    1. Alan Stockdale said on 18th Feb 2009, 11:54am:
      The governments theory is that by stimulating demand it will offset the effects of the Global Financial Crisis. The problem with the handout approach is that it tends to produce, at best, only a temporary effect. Many people share your concerns. I think that any government 'spending' should be directed at long term benefit improving Australian productivity.
    2. Alan Stockdale said on 18th Feb 2009, 11:54am:
      This will prepare Australia to take advantage of recovery as it commences and best protect Australian jobs in the meantime. It is interesting that Gerry Harvey said recently that the governments 10 billion dollar package led to record Harvey Norman sales in December but that January and February looked like being very slow. This shows how transient the effect of handouts is - I hope that your job is secure but the security is unlikely to come from handouts.
  5. Ben said Hide on 18th Feb 2009, 11:55am:
    Do you think Lindsay Tanner would be able to manage the treasury better than Wayne Swan can given these times of global uncertainty?
    1. Alan Stockdale said on 18th Feb 2009, 11:58am:
      I think that Joe Hockey and Malcolm Turnbull would do the best job.
  6. Alan Stockdale said Hide on 18th Feb 2009, 11:57am:
    The problem with the Rudd $42B package is that there is no plan to return Australia to surplus; we will have $200B of debt, billions of $'s in new interest commitments and very little if any improvement in our ability to compete to sell goods & services to the rest of the world.
  7. Paul Gardner said Hide on 18th Feb 2009, 12:00pm:
    When was this photo taken?
    1. Alan Stockdale said on 18th Feb 2009, 12:17pm:
      Just before your 50th birthday party
  8. Adele Ferguson said Hide on 18th Feb 2009, 12:00pm:
    Alan, how much worse do you think things will get in Australia and what will be the first signs that things are starting to bottom globally? Will it be a loosening of the credit markets?
    1. Alan Stockdale said on 18th Feb 2009, 12:15pm:
      Hi Adele - on current policy settings there is a real risk that things will get worse in 2009 through to 2010 - some companies are still getting the benefit of investments made and/or contracts prices negotiated during the boom times. These benefits will be largely gone by 2010 and there is a risk that profits will be impacted even more in 2010 than they are in 2009....cont
    2. Alan Stockdale said on 18th Feb 2009, 12:15pm:
      ...I think the first signs of recovery will probably come from the US with a recovery in consumer sentiment and business confidence. In the forseeable future it is hard to see how the cycle of losses, retreat of institutions to their domestic markets and their reluctance to lend can be broken but the availability of credit is clearly a key factor in the commencement of recovery.
  9. Tyron said Hide on 18th Feb 2009, 12:06pm:
    Hi Alan, which type of small businesses, if any, do you think will prosper in the market ahead? How can small business prepare for the Global Financial Crisis?
    1. Alan Stockdale said on 18th Feb 2009, 12:39pm:
      Other than insolvency practices, I think most businesses including SME's will feel some impact of the GFC. No doubt though there will be businesses that thrive. Small businesses will each know best what works for them but obviously they will need to focus on costs relative to revenue and on doing what they do best in looking after their customers.
  10. Robert Lyon said Hide on 18th Feb 2009, 12:08pm:
    Alan, Would it be timely to consider replacing the state payroll taxes with a national "Carbon tax? on a revenue neutral basis - even if as has been suggested, exports (but not imports)were exempted from the carbon tax. Surely, this would promote emplopyment in all states - especuially Tasmania which produces most of its electricity from hydro geneators.
    1. Alan Stockdale said on 18th Feb 2009, 12:23pm:
      I certainly agree that directly taxing jobs is not a good idea especially since payroll tax falls on larger businesses with a capacity to generate jobs on a significant scale and which in many cases are trade exposed. That would require a national program and putting some of the current spending into reducing or eliminating payroll tax would protect jobs in a way that provides ongoing benefit...cont
    2. Alan Stockdale said on 18th Feb 2009, 12:23pm:
      ... In my view, the issues of a carbon tax are a different matter and need to be considered in our overall approach to climate change.
  11. Callum Brown said Hide on 18th Feb 2009, 12:08pm:
    Alan, do you think interest rates will need to go lower in order to insulate Australia from the financial problems faced overseas? If so how much lower do you think they could go from where they are today?
    1. Alan Stockdale said on 18th Feb 2009, 12:42pm:
      I have learned that I am no expert on interest rates but the market seems to have priced in another 100 basis point reduction in interest rates. I suspect that general economic conditions in 2009 and 2010 will satisfy the RBA that the inflation risk is low and thus interest rates seem more likely to fall further rather than rise.
  12. Marc Moncrief said Hide on 18th Feb 2009, 12:10pm:
    Hi Alan, Do you agree with the Victorian government's argument that Victoria is better placed than other states to get through this crisis? What reforms would you recommend on a state level?
    1. Alan Stockdale said on 18th Feb 2009, 12:30pm:
      I think that in the context of a global crisis the inter connections between Australia's States are so strong that it is not really possible to say one state is better placed than any other state. EG our mineral resourced states are relatively harder hit now but will benefit more as demand from China and the rest of the world picks up again....
    2. Alan Stockdale said on 18th Feb 2009, 12:31pm:
      ....There is not space here to go into the tax, infrastructure, education and training and numerous other reforms by which the States could contribute to moderating the impacts of the crisis and preparing Australia to capitalise on recovery.
  13. Roger Colless said Hide on 18th Feb 2009, 12:12pm:
    Hi Alan. I don't see a huge amount of financial stress here in Broome where I live. Although you say the GFC is bad, do you also think that the media is going overboard with their scaremonger reporting and making people feel worse than they really should?
    1. Alan Stockdale said on 18th Feb 2009, 12:35pm:
      I'm really pleased to hear that things are going well in Broome - let's hope that stays the case. Nonetheless the GFC has real causes, manifestations and effects - the collapse of Lehmman Bros and near collapse of other major businesses do involve many people loosing alot of money......
    2. Alan Stockdale said on 18th Feb 2009, 12:36pm:
      .... That said - confidence or the lack of it is a major factor. I think the gloom and doom rhetoric of government ministers and the constant bad news focus of the media is aggravating the basic lack of confidence and is scaring people.
  14. Ben said Hide on 18th Feb 2009, 12:32pm:
    If the current $900 Kevin 07 hand out doesn't work, should we expect to see more handouts coming?
    1. Alan Stockdale said on 18th Feb 2009, 12:45pm:
      Unfortunately the current government seems quite prepared to rack up debt to fund hand outs. I believe the hand out strategy will not work and the government doesn't seem to know what else to do. I think tax reductions for individuals and lower taxes and costs for business with development of infrastructure that improves productivity is more important but I suspect we will see more handouts.
  15. Anna said Hide on 18th Feb 2009, 12:54pm:
    Hi Alan, how are we going to pay back all this money that the government is handing out?
    1. Alan Stockdale said on 18th Feb 2009, 12:58pm:
      Good question - the government has said that debt will keep rising for the next 3 years but that is only because its forward estimates only cover 3 years. The worrying thing is that the government has no plan to return the budget to surplus and because it is in deficit will effectively be borrowing to pay billions of dollars in interest......
    2. Alan Stockdale said on 18th Feb 2009, 12:58pm:
      ....The last Labor debt was repaid by selling Telstra and more than decade of boom times. We cannot sell Telstra again and it would not be prudent to expect a repeat of the boom. I suspect that this Labor debt will last many many years.
  16. Ben said Hide on 18th Feb 2009, 12:54pm:
    Alan, do you think Ronald Reagan quote "The ten most dangerous words in the English language are "Hi, I'm from the government, and I'm here to help."" Still apply?
    1. Alan Stockdale said on 18th Feb 2009, 2:00pm:
      Yep - I think we all know how to assume the position!
  17. Bas said Hide on 18th Feb 2009, 12:54pm:
    Mr Stockdale When America sneezed we used to catch a cold. This time round it appears the US has gone down with a pretty severe case of pneumonia but we have, so far, not had to reach for the breathing machine ourselves. To what extent, if any, do you see the potential for the continual decoupling of the rest of the world from the US' fortunes with the the emergence of new economies like China and SE Asia? What should our governments be doing to leverage off that potential opportunity?
    1. Alan Stockdale said on 18th Feb 2009, 1:03pm:
      I think the GFC is demonstrating that the decoupling theory was exaggerated or simply untrue. The inter relation of China and the US is demonstrated in the Chinese slow down coming from plummeting sales to US consumers and China's holdings of US Treasuries serve only to emphasis how inter dependant they are. Whoever is in govenment in Australia needs to ensure that Australia is a reliable and competitive supplier to the rest of the world including emerging economies like China, India and Asia in general.
  18. Patrick said Hide on 18th Feb 2009, 12:54pm:
    How will the Government determine that this handout and its direct impact on the Australian Economy? I read that the Christmas bonus did little more than buy a few presents, food, reduce some C/Card debts and in some cases Gambling levels went higher (not sure if this was true). Before other handouts take place, we need the Govt. to be very clear where they think this money will be spend and what KPI's will be impacted in a positive manner. Your thoughts
    1. Alan Stockdale said on 18th Feb 2009, 1:10pm:
      It is interesting that government ministers have changed their rhetoric from "creating jobs" to "protecting jobs" - the government is avoiding accountability and has largely succeeded in respect of the 2009 $10B spending spree - Gerry Harvey said that the effect only lasted one month. The head of Treasury said recently that we might never know whether the spending worked......
    2. Alan Stockdale said on 18th Feb 2009, 1:10pm:
      ..... The government should be pressed to quantify the key measures - GDP, unemployment, business failure etc so that their policy effects can be measured. I agree that to date every indication is that the spending so far undertaken has had little or no effect.
  19. Michele said Hide on 18th Feb 2009, 12:57pm:
    Hi Alan. As a nursing student, how is all this going to affect the health systems and hospitals, will there be jobs out there when I finish?
    1. Alan Stockdale said on 18th Feb 2009, 1:14pm:
      Michele - despite the fact that health spending is the fastest growing element of the Federal Budget I am confident that there will be jobs for nurses - as you know, we have a chronic shortage of nurses and many qualified nurses are working as shop assistants etc. The interest bill on Mr Rudd's $200B debt will squeeze our service delivery capability but as an essential service the money will have to be found for hospitals.
  20. Jen said Hide on 18th Feb 2009, 1:00pm:
    The Federal Government currently cannot look after the nursing homes system that fall under their jurisdiction. How are the going to manage the hospital system Austraia wide.
    1. Alan Stockdale said on 18th Feb 2009, 1:18pm:
      Jennifer - I think there are bound to be changes in the way the Federal Government funds hospitals but Australia will be paying billions of $'s in interest on Mr Rudd's $200B debt and that is going to aggravate the imbalance between supply of hospital services and the demand for health care - people will suffer because of the debt.
  21. Stephen Jarvens said Hide on 18th Feb 2009, 1:00pm:
    Hi Alan. I would like some new pink bats for my roof, but unfortunately I don't qualify for any rudd handouts. Do you know where I can buy some?
    1. Alan Stockdale said on 18th Feb 2009, 1:21pm:
      All is not lost - as a tax payer you will benefit from your 'non' handout as debt and taxes would be higher if you and I qualified. Grey bats fly over my home each night on their way to from the Botanic Gardens to somewhere out east - I haven't seen any pink ones so I'm afraid I can't help.
  22. Trenn Sayer said Hide on 18th Feb 2009, 1:08pm:
    Hi Alan,what do you think Mr Rudds next move will be when this package has weashed wthough and he is facing the next election?
    1. Alan Stockdale said on 18th Feb 2009, 1:25pm:
      Unfortunately I suspect that we will have more and more handouts in a vain attempt to pump prime consumption spending and buy votes. Eventually Mr Rudd or his successor will face the interest cost of his $200B+ debt and at that time the risk is that the debt will drive massive tax increases.
  23. Michael said Hide on 18th Feb 2009, 1:08pm:
    Alan, another key factor in the economy is interest rate policy. The US is almost at zero interest to stimulate growth. Do you think the Reserve bank should be more agressive in further reducing interest rates going foward?
    1. Alan Stockdale said on 18th Feb 2009, 1:27pm:
      As I've said before I am no expert on interest rates - given the scarcity of credit the major consideration is the impact of interest rate reductions on confidence - I think the RBA has to be prepared to keep cutting rates.
  24. Harry Cambridge said Hide on 18th Feb 2009, 1:12pm:
    Hi Alan, in your opinion which industry/sector do you believe will be the first in helping turn the financial downturn around? Can one sector start a snowball affect in this instance or will simultanious industry growths be required to level the economy?
    1. Alan Stockdale said on 18th Feb 2009, 1:32pm:
      I believe that a broad based recovery can only occur when the banking and financial sector's health has been restored. With banks so reluctant to lend it is hard to see how investment, development projects and Merger & Aquisition activity (which often drives more productive use of resources) can be kick started. Breaking the current deadlock in capital markets is an essential condition for recovery.
  25. Trenn Sayer said Hide on 18th Feb 2009, 1:15pm:
    Alan, do you think a strong buy Australian keep jobs here is important or do we need to keep global supply relationships in place?
    1. Alan Stockdale said on 18th Feb 2009, 1:36pm:
      I think it is important to encourage Australians to buy Australian but, in the end, the best protection of Australian jobs is for Australia to do the things in which we are world competitive and ensure that we are a reliable supplier of world class value goods and services. This is not incompatible with the positive aspects of globalisation and Australia, more than most countries, needs open world markets and the ability to import and export on an efficient basis.
  26. Tom Mitchell said Hide on 18th Feb 2009, 1:23pm:
    How does the Government get away with wasting $550m on consultant contracts at time when they are saddling the country with historic levels of public debt and mortgaging our children's future? Is this jobs for their mates or will we get value from this massive spend?
    1. Alan Stockdale said on 18th Feb 2009, 1:40pm:
      It seems that they are not getting away with it - it was after all front page news today. The parliament can and should keep the government accountable although it is often difficult to establish whether the tax payer got value for money. Reports by the Auditor General are important in enhancing parliamentary and public scrutiny. Under Labor in my experience it is often the mates to whom the money flows.
  27. Kevin said Hide on 18th Feb 2009, 1:25pm:
    Good afternoon Alan, I came from China. There is a close economic connection between AU and China, especially in mining and farming industries. So on what perspective do you think that GFC could worsen this cooperation between two countries. Fewer demand, hence job losess? And do you think China can help on this situation ?
    1. Alan Stockdale said on 18th Feb 2009, 1:44pm:
      I agree that the relationship between China and Australia is a very important one. Provided the result is not artificial price manipulation I think that Chinese investment in key Australian industries is not necessarily a bad thing - the strongest economy in the world over the last 150 years was largely built on imported capital in its formative years. Unfortunately in the forseeable future both Australia and China seem certain to suffer from the global down turn in demand.
  28. Sally Pleasant said Hide on 18th Feb 2009, 1:30pm:
    Alan, how would a liberal Government do a better job managing the impact of the GFC on the Australian economy? If Rudd doesn't get this spend right, we may be looking at a change in Government at the next election.
    1. Alan Stockdale said on 18th Feb 2009, 1:57pm:
      I certainly believe that the Coalition can win the next election. The Coalition response to the crisis is clear from its position on Mr Rudd's $42B package. The Coalition would cut personal and business taxes and take other action to reduce business costs. This would give incentive for job creation, protect existing jobs and strengthen Australia's competitiveness......
    2. Alan Stockdale said on 18th Feb 2009, 1:58pm:
      In addition spending would be targeted on infrastructure development that improved Australian productivity so that we would be in a better position to benefit when recovery commences. The IMF has said that in the GFC government spending should be "timely, targeted and temporary." .....
    3. Alan Stockdale said on 18th Feb 2009, 1:58pm:
      ....The current governments approach is none of these things and there is no plan to restore the budget to surplus or to repay Labor's $200B of debt. Last time the debt was repaid by selling Telstra and by more than a decade of economic boom - we cannot rely on either of these things to repay Mr Rudd's debt.
  29. Bas said Hide on 18th Feb 2009, 1:47pm:
    Mr Stockdale You say above that "breaking the current deadlock in capital markets is an essential condition for recovery". I totally agree, but how can governments compel banks to come back to the market without further distorting market forces?
    1. Alan Stockdale said on 18th Feb 2009, 2:05pm:
      Very good question - given the interdependence of banks and other businesses it is probably legitimate for governments to be prepared to "bail out" banks but I think great caution needs to be exercised (so as not to remove the consequences of bad decisions) and wherever banks call on guarantees or receive "bail out" funding it is appropriate for governments to protect the tax payer by taking equity. Of course even then governments cannot compel banks to lend money.
  30. Harold Lucero said Hide on 18th Feb 2009, 1:56pm:
    Hi Alan, the ABS estimates that there are more than 1M private sector small businesses which represents 97% of all private sector businesses. Small businesses employ about 50% of all private sector employment. 99% of businesses have less than 100 employees - do you think the $42B package will benefit the small and medium business sector as government 'tenders' seem to mainly be won by big business. Do you think a business tax reduction/concession/grant would be fairer to stimulate the economy?
    1. Alan Stockdale said on 18th Feb 2009, 2:10pm:
      I entirely agree - I think it is clear from our experience of the first Rudd package that, at best, government handouts create a one off short term benefit and probably do not stimulate the economy at all. I believe any government spending program should be directed at improving the operating dynamics and cost structure of business, especially small business, so that real and lasting jobs are created. I think that we have covered my views on tax reduction in previous comments.
  31. Miranda Dimopoulos said Hide on 18th Feb 2009, 2:16pm:
    My main concern is whether this will impact my ability to get a mortgage for my first home. It is becoming increasingly more difficult to obtain credit as the banks tighten their purse strings. Especially as I have recently returned from a number of years overseas and don't have a credit history in Australia.
    1. Alan Stockdale said on 18th Feb 2009, 2:21pm:
      Unfortunately there is a risk that even mortgage funding will be adversely affected by the GFC unless you have saved a significant deposit and can show capacity to service the loan. Something that could be helpful are the first home buyer schemes - I understand that both the Commonwealth and State Governments have recently liberalised and extended the support they provide for first home buyers - this is ofen used as a bridge for the deposit. Good luck with the purchase of your first home.
  32. Edward Fisher said Hide on 18th Feb 2009, 2:19pm:
    The Rudd stimulous package includes funding to some "irrelivent" areas such as schools. Imported goods will most likely be what this payout is spent on. How affective will this package be? Will it make a dent in Australia's situation? Won't this just dilute the Australian dollar further?
    1. Alan Stockdale said on 18th Feb 2009, 2:24pm:
      You make some good points - pressure on the $AU from a very substantial government budget deficit and rising government debt is certainly one of the adverse impacts that will be felt long before Gen Y (and maybe even Gen Z) has to repay the Rudd debt.
  33. Don Clarke said Hide on 18th Feb 2009, 2:19pm:
    Alan A very simple question - with the sharemarket falling, and likely to fall further; the property market in decline and expected to lose up to a further 20% (or more) this year and interest rates at long term lows and likely to remain there for some time, what is your advice for the average punter with money to invest?
    1. Alan Stockdale said on 18th Feb 2009, 2:27pm:
      I regret that I am not licensed to give investment advice - I can only say that, despite the current low interest return, my family is still in cash as far as practicable - it seems to us that +3% is better than maybe -10% or 20%.
  34. Dominique Fisher said Hide on 18th Feb 2009, 2:28pm:
    Thank you so much Alan Stockdale for an informative and stimulating discussion and thank you to all of our participants. Helix Digital will be hosting forums of interest on a regular basis so we look forward to hearing from you again soon !
  35. Alan Stockdale said Hide on 18th Feb 2009, 2:30pm:
    Thank you everybody for participating in this ground breaking on line forum. The quality of the questions was obviously superior to the quality of the responses. Thanks again, regards, Alan