The one predictable outcome of the government’s stimulus package is that it will create bigger government.
Through borrowing to finance its stimulus package (mark II) the government will introduce siginificant distortions into the marketplace.
The funds that the government borrows are those that would otherwise be available for the private sector to build houses, buy new plant and machinery and employ workers etc. The government's deficit spending will certainly expand the growth of government, but this will be at the expense of the private sector. This cancels out any so called ‘stimulus’.
The claim that the stimulus package will protect and in some areas create jobs is a fallacy. Any apparent boost to employment from the stimulus package will be temporary at best as government financed employment simply replaces privately financed employment.
It should always be remembered that the real cost of government is not what it collects from the taxpayer in taxes, but what it spends and the regulatory burden it imposes on our economy. To this end, the growth of government continues largely unchecked and regardless of whether the deficit is $40, $100 or $200 billion, the result will not only be bigger government, but a democracy that is all the poorer for it.
In summary, a genuine stimulus package should include:
- a capital gains tax cut to boost investment, a payroll tax cut to make it less costly to employ workers and personal income tax cuts across the board, with a focus on the top marginal rates;
- a reduction in government spending to get government out of the way and to allow private enterprise and the market to invest in productive capital without the government distorting decision making and
- the elimination of regulation that is financially burdensome and duplicative. It is time for the government to stop talking about how business is ‘regulated to hell’ and that they are committed to a ‘seamless’ national economy, by taking real and immediate action. Vested interests and rent seekers, including unions and business need to be put in their place for the good of the nation.