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The RBA must be tearing their hair out

The Governor of the RBA gave a speech on Tuesday where he basically pleaded with the government for some help.

“… we should not rely on monetary policy alone. We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.”

Philip Lowe also pointed out that the benefits of the easing of monetary policy are not evenly distributed across the community. It’s great for investors wanting to expand their share or property portfolio but the majority of people are not in the position to take advantage of lower interest rates to take on more debt.

And we are not seeing a rise in business investment, in part due to policy uncertainty but also due to a lack of demand. There is no point expanding if you don’t have customers.

Whilst the government might be proud of their record on employment, that optimism is not shared by the RBA who say there is too much spare capacity in the economy and that it is both “possible and desirable” to reduce unemployment and underemployment.

They are hoping that an increase in the tax offset for low and middle income earners will increase disposable household income but it is much more likely to be eaten up by bills and, unlike franking credits, it is not refundable so those on the lowest incomes will see no benefit at all.

One obvious strategy would be to invest quickly in building infrastructure as the Labor party did during the GFC.

“This spending adds to demand in the economy and – provided the right projects are selected – it also adds to the country’s productive capacity. It is appropriate to be thinking about further investments in this area, especially with interest rates at a record low, the economy having spare capacity and some of our existing infrastructure struggling to cope with ongoing population growth.”

Unfortunately, the government has preferred a piecemeal porkbarrelling approach to infrastructure rather than allowing the experts to determine priorities based on need and value.

The commitment to delivering surplus budgets is madness at a time when the economy is lagging and interest are so low.

As the Governor pointed out…

“the Australian Government can borrow for 10 years at around 1.3 per cent, the lowest rate it has faced since Federation in 1901. It is also able to borrow for 30 years at an interest rate of less than 2 per cent.”

It is inconceivable that they would choose now to pay down debt when they could borrow money at such low rates and really kick start the economy through government spending on productivity enhancing investments.

It’s not only the surplus fetish that is a problem as former head of the RBA, Bernie Fraser, points out. The government’s self-imposed cap on tax-to-GDP would also act as a restraint on the economy.

“What this dopey cap does is that it acts as a cap, not just on tax but also on expenditure, so if you have to do something you’ve created a problem for yourself,” he said.

With borrowing costs so low, an exchange rate at the bottom end of its range in recent times, surging iron ore prices boosting our terms of trade, and a nominally low level of unemployment, things should be going a lot better than they are.

But the reality is that social security payments are too low and many people are living in poverty, wages have stagnated, underemployment is rising and job security is falling.

Yet all this government can talk about is tax cuts for the wealthy and delivering a surplus.


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  1. David Evans

    Not a chance in hell that this ship of fools is ever going to chart the ‘right’ course, standby for major recession,

  2. Keitha Granville

    Surplus, schmurplus.

    Who the hell cares when they have no job, no liveable benefits, pension etc. Oh that’s right, don’t worry, I got my free refund from the hard working taxpayers of the country who have no disposable income left to buy any shares.

    Tahnks, toall of you who voted this mob in, thanks for nothing.

  3. New England Cocky

    “We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.”

    It is the “better outcome for society as a whole” where this article fails because this Liarbral Notional$ misgovernment have no interest in “society as a whole”, rather their only interest is multinational corporations providing highly paid sinecures after politics for politicians who have toed the respective corporate line.

    Consider former NSW Liarbral Premier Baird selling off the NSW Land Titles Office to a consortium of banks and “retiring” into a banking sinecure returning a reported $2 MILLION PER YEAR. Plus former NSW Premier Nick “Goulash” Greiner retired in disgrace from NSW politics into about 40 corporate board positions among the many corporations that benefitted from the then privatisation of NSW government services.

    Then there is the recent Prissy Pine imbroglio with a defence industries consultancy.

    But the rot goes deeper in the Nat$ where former leader Mark Vaile led the way for politicians to enter the export mining industries, former leader John Anderson into Eastern Star Gas drilling for CSG in the Pilliga Scrub before selling out to Santos, where Barnyard Joyce purchased two properties for “grazing” when the land might carry one sheep per hectare in a wet year, but a conveniently located only about 20 km from the proposed uneconomic Northern Inland Rail proposed rail easement, of which John Anderson just happens to be Chairman. The NIR own financial projections show that covering the initial cost of developing the NIR will take at least 50 years.

  4. Diane Larsen

    I commented when this mob were first elected under Abbott that their goal would be to drive us into recession so as to introduce austerity measures and allow the wealthy that would not be affected to snatch up cheap properties under enforced sales by poor buggers who could no longer keep their mortgage commitments while the rest of us struggle to stay afloat under their incompetence and disastrous policy decisions. I haven’t changed my opinion in 6 years its getting closer a lot of people are in for a rude shock in the coming three year term under this verim of a government. This is my first comment since the election that caused me to go into shock and a sense of desperation I am emerging and the anger is starting reastert itself. Keep writing your articles keep me sane

  5. Kaye Lee

    “The economy is changing all the time in response to a large number of forces. Monetary policy is always having to analyse and assess these forces and their impact on the economy. But few of these forces have the scale, persistence and systemic risk of climate change.” – Guy Debelle, Deputy Governor RBA, Sydney – 12 March 2019

  6. Wam

    Sorry, Kaye, but the lord is on about truth.
    The tax cuts, the surplus and their government as what they took to the electorate and they miraculously succeeded.
    A little bribe is all they are away from achieving their wildest dreams.
    Note the ‘grand in the hand’ slogan not true but close enough for the morning shows and Jacqui et al.
    To forsake their surplus, already achieved in many rabbottian minds, for the sake of the economy will endear them to the electorate and free them from responsibility for any recession. Thanks, brownie!
    ps is climate change natural tell the truth, lord??

  7. Kaye Lee


    To quote Guy Debelle….

    “We need to think in terms of trend rather than cycles in the weather. Droughts have generally been regarded (at least economically) as cyclical events that recur every so often. In contrast, climate change is a trend change. The impact of a trend is ongoing, whereas a cycle is temporary.

    ….. the insurance industry has recognised that the frequency and severity of tropical cyclones (and hurricanes in the Northern Hemisphere) has changed. This has caused the insurance sector to reprice how they insure (and re-insure) against such events.

    The United Nations’ Intergovernmental Panel on Climate Change (IPCC) report documents that 1 degree of warming has already occurred from pre-industrial levels as a result of human activities. It provides strong evidence that another half degree of warming will occur in the next 10 to 30 years if warming continues at the current rate. That is the average outcome, with some areas experiencing greater warming.

    There is also likely to be significant volatility around that outcome, with an increase in the frequency of extreme temperatures. This volatility is highlighted in the first graph in the recent Bureau of Meteorology (BoM) and CSIRO report, State of the Climate. The report states that ‘Australia’s climate has warmed by just over 1 degree C since 1910, leading to an increase in the frequency of extreme heat events’, and expects further warming over the next decade. These extreme events may well have a disproportionately large physical impact.

    There is also a greater possibility of compound events, where two (or more) climatic events combine to produce an outcome that is worse than the effect of one of them occurring individually. Combined with the increased volatility, this increases the likelihood of non-linear impacts on the economy.”

  8. totaram

    Diane Larsen: I dips me lid!

  9. Aortic

    Interesting that the Governor is challenging the economic policies of the government. Shouldn’t he be challenging the lack of economic policy. All I heard was ” Labor can’t manage money.” If these so called dark economic adverse winds they talk about come upon us, we will all be up the proverbial creek without a paddle. Neither Morrison or Frydenberg would know an economy if it jumped up and bit them on the arse. Still tax cuts for the upper end onwards and trickle down will surely work non? And who got us through the last GFC? It certainly wasn’t the Liberals and those in opposition in those days actually had a couple who were not all bad. More than I can say for this current mob of meandering meaningless mantra mumblers.

  10. Wam

    Yes Kaye, thanks.
    I will pass it, or as much as I can digest, to my rabbottians

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