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Joe Hockey’s pre-loved stimulus plan a sign of hope

AAP

AAP

The pleasant surprise contained in the latest ABS jobs figures makes a welcome change from the gloom of many other economic indicators … but don’t uncork the champagne just yet.

The survey showed more than twice as many jobs created in March as analysts expected and, importantly, 30,000 of the 37,000 new jobs were full-time positions.

That brought the seasonally adjusted unemployment rate down to 6.1 per cent – a lot better than the 6.4 per cent in January, which was a 12-year high.

Surprise fall in unemployment rate
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• Budget bogeyman stalking Abbott, Hockey’s popularity ratings

So is the economy turning around? Can the Coalition claim that despite miserably low consumer confidence, its policies are convincing businesses to take on new staff anyway?

If only. More likely is that statistical noise in this reading will make April’s data look less rosy. In trend terms – meaning adjusted to smooth out sharp statistical moves – the jobless rate in March is the same as in February, at 6.2 per cent.

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Small businesses like cafes stand to benefit if Mr Hockey’s stimulus measures are left in place.

But hell, it could have been a lot worse and it’s worth talking up. At the same time, the government must be very careful that the May budget helps preserve whatever weak momentum these figures indicate in the economy.

Signs so far are good, as Treasurer Joe Hockey seems to be learning how to ignore ideologues in his party room and listen to economists.

The number one case in point is the promised budget surplus – which went from “in our first year” to “within a few years” to not mattering at all as long as successive deficits were getting smaller.

Mr Hockey’s economic re-education would be funny to watch were it not so directly linked to the wellbeing of so many Australian households.

The man who as Shadow Treasurer turned a modest national debt into a ‘debt and deficit’ bogeyman, and who daily berated Labor for getting its revenue forecasts wrong, is now stuck in the same position – watching revenues fall, unable to slash spending for political reasons, and therefore likely to hand down a budget with “deficits as far as the eye can see”, as he used to put it.

Still, his capitulation to reality is better late than never. The seriousness of Australia’s growth dilemma seems to have hit Mr Hockey hard and there are signs that this budget will begin to address those concerns rather than obsess over the nation’s credit card bill.

The key announcement on this front was the suggestion on Wednesday that small businesses will be given back some of the tax breaks they lost when the Abbott government came to power.

To recap, from 2011 onwards Labor was engaged in a major push to steal the Coalition’s lunch by giving sizeable tax breaks to the Liberal Party’s historical core constituency – small to medium-sized enterprises (SMEs).

Thus it created a dedicated cabinet minister for small business, appointed a small business commissioner, and made tax reforms such as a loss-carry-back to smooth SME profits between good and bad years, accelerated depreciation on large items of capital expenditure, and an instant asset write-off for small cap-ex items.

The incoming Coalition government’s response to this assault on their long-held territory was breathtakingly inept in political terms.

Rather than just say “we’re the party of small business, so we won’t touch those goodies”, it instead drastically reduced them. Sure, that saved a bit money, but thousands of SMEs were not impressed.

And the reason? Because nominally those stimulatory hand-outs to SMEs were funded by the badly-designed mining tax.

So let’s get this straight. The carbon tax was scrapped, but the compensation Labor had given back to low-income earners and pensioners was (mostly) left in place … but the mining tax give-aways to small businesses were junked along with the mining tax. And all this by the party of small business. Hmm.

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Stimulating the economy is the only way of putting Australians back to work.

As confusing as all that is, the still-vague plan to cut SMEs some slack is a good idea. The economy is in the doldrums, and monetary policy is increasingly ineffective – as explained previously.

Interest rate cuts are proving less and less effective, which is one reason the RBA was able to keep rates on hold this month, and may even do so in May.

So allowing SMEs to write-off small cap-ex items in one year instead of four – the so-called ‘instant asset write-off’ – is a good idea. Labor allowed SMEs to do this with any item up to the value of $6,500. That was reduced to $1,000 by the present government, which looks set to raise that figure back to $5,000.

It has also suggested that it will look at restoring accelerated depreciation for more expensive items.

Finally, it is effectively creating a two-tier corporate tax system – incorporated SMEs will pay 28.5 cents in the dollar tax, whereas larger firms will pay 30 cents.

If that sounds unfair, it’s worth noting that corporate Australia is far more adept at avoiding that 30 per cent rate, particularly through complex corporate structures and profit shifting. Viewed through that lens, a 1.5 per cent cut for SMEs is the least the government can do.

If the government goes ahead with these changes, it stands some chance of providing a stimulatory impulse to the economy in the way loose monetary policy is so far failing to do.

The other option is a Keynesian stimulatory spending plurge … and that might be just a little to much to ask of Treasurer Hockey, despite his newfound interest in moderate, growth-oriented policies.

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