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Vital Signs: why the government still thinks it can ‘grow away’ the deficit

Richard Holden writes in The Conversation (5.5.17) about the federal government's continuing adherence to its 'growth and jobs' mantra, arguing that economic and budgetary forecasts might not be as rosy as the Treasurer would have us believe.

'The Treasurer, Scott Morrison, got a little unexpected positive pre-budget news with upbeat reporting of Tuesdays’s RBA decision to do … nothing. There were headlines like the AFR’s: “RBA bets on global rebound in boost for Scott Morrison”.

'The RBA did what absolutely everyone expected it to do and held the cash rate steady at 1.50%. The board then issued an extremely “hedgy” statement that somehow was interpreted in many quarters as kind of bullish on growth. That’s not how I read it.

'… Notice how much of the potentially positive news is to happen in the future, not actually happening now. Growth might increase “over the next couple of years”. On inflation, [Reserve Bank] Governor Philip Lowe said: “A gradual further increase in underlying inflation is expected as the economy strengthens”. And on financial stability in the housing sector: “The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness”.

'Perhaps the Australian economy really is “the little engine that could”, because that statement by Lowe sounds a lot like him interpreting an economy whispering “I think I can, I think I can, …”. Yet how this all turns out is terribly consequential. All signs point to a budget that will aim to “grow away” the deficit rather than restrain spending.


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