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The homebuilder scheme is simply pork-barrelling to the Coalition's electoral base

<span>Photograph: Dan Peled/AAP</span>
Photograph: Dan Peled/AAP

The government’s “homebuilder” program is surely in the running for the most mendacious piece of public policy since Peter Costello decided to give tax refunds to people who don’t pay income tax.

To kickstart what prime minister Scott Morrison calls a “tradie-led recovery”, the government will provide grants of $25,000 to eligible home owner-occupiers, through a temporary program that will deliver an estimated $688m over six months to individuals who earned up to $125,000 last financial year or couples who earned up to $200,000.

To get the grant, they must enter into a contract between now and December to build a new home worth up to $750,000 or to “substantially renovate” an existing one valued at up to $1.5m, with a minimum renovation cost of $150,000.

Related: Renovation grants: Morrison government to offer $25,000 in home builder stimulus

If you set out to design a fiscal stimulus measure that would fail to meet any objective economic criteria, you couldn’t do much better than this.

How many Australian families with a combined income of less than $200,000 per year do you think are planning a $150k renovation in the next six months? If they are, do you think they wouldn’t have gone ahead anyway without a cash grant of no more than 16.66% of their costs?

Anyone able to start this kind of large-scale renovation by the end of the year either already has their finance lined up and hasn’t suffered an income cut during this crisis that would make them reconsider, or has the cash to do it without borrowing.

The impact on new housing construction will almost certainly fall short. New home buyers are overwhelmingly younger workers. According to the most recent labour force data, their incomes have been smashed by the Covid-19 economic shutdown, with unemployment and underemployment amongst those under 35 at record highs. How many of them will decide to take on a loan of up to $600,000 in the middle of the greatest economic downturn in a century, just because the government is chipping in around 5%?

Even if the government’s expectation of 27,000 grant applications is realised, it is likely that a significant proportion of the grants will go to projects that would have proceeded without an injection of public funds.

In economic terms, this package is, to use a technical term, nuts.

The grants are so poorly targeted to increase construction activity, it’s necessary to question whether that is in fact their intention. The outcome is more likely to inflate house prices, or at least to soften the widely expected fall in the value of existing homes. That might improve the nation’s headline GDP figures, but it does nothing to create new jobs or increase household living standards.

Australia has some of the highest levels of private (household) debt in the world, at over 200% of annual household income. This is almost entirely due to years of rampant speculation in the housing market, which has inflated home prices to the point at which they are among the most unaffordable in the world.

Contrary to widespread belief, which has been deliberately fuelled by years of “debt and deficit” fearmongering by politicians, it is private, not public, debt that poses the greatest risk to our recovery.

Related: Yes, Australia is in a recession – but worse is yet to come | Greg Jericho

As we emerge from this crisis, the ability of highly indebted households and businesses to spend money into our economy will be severely curtailed by reduced incomes and uncertainty about job security. Encouraging people to borrow more money to invest in their family home, in a market that is already losing value, is breathtakingly irresponsible.

That the government is fuelling household debt during a recession, while boasting that a $60bn underspend on its stimulus package is “a saving for taxpayers”, should put the lie once and for all to the Coalition’s claim of being superior managers of the Australian economy.

Even if, by the kind of miracle on which the PM seems to rely, this package is fully subscribed, it would remain a terrible use of public funds, and reveals a lack of fiscal discipline in the government’s approach to debt.

There is nothing disciplined about using public debt to increase private wealth. Government borrowing during a downturn should be invested in the productive capacity of the economy: to build public infrastructure that will make a financial return to the common wealth, or to invest in skills and training for Australian workers, which both increases individual opportunity while boosting productivity and economic growth.

To use borrowed, public money to increase the value of private property is a deliberate transfer of our common wealth to private asset holders. Most egregiously, this is unfair on younger Australians who will contribute to paying off the nation’s debt in their future working lives, without seeing any benefit from the money being pumped into the value of private homes today: indeed, it will actually make those homes less affordable for them.

There are around 150,000 applicants on the waiting list for a public housing unit in Australia. Over a quarter of those deemed to be of greatest need wait more than a year for a home. Investment in public and community housing is desperately needed. It would provide a genuine and immediate stimulus for the construction sector, building housing that otherwise would not have come to market, while increasing housing affordability and addressing homelessness.

There can be no justification for pumping public money into the hands of homeowners with the capacity to take on six-figure loans for renovations while hundreds of thousands of Australians go to sleep each night without a secure roof over their heads.

The mistaken belief that the government has abandoned ideology and found a new pragmatism in the face of Covid-19 should be firmly quashed by the announcement of “homebuilder”. It will exacerbate wealth and income inequality in Australia, and do little to create new jobs or improve living standards for lower and middle-income households.

It is, quite simply, pork-barrelling to the Coalition’s electoral base in a time of economic crisis, using money borrowed against our collective future. There’s nothing pragmatic about that.

• Emma Dawson is executive director of public policy thinktank Per Capita