We’ve run out of puff Supply is the key now, says ex-treasurer
AUSTRALIA has less ammunition to fight a slowdown than in the past because interest rate cuts and government stimulus efforts have run their course, Future Fund chairman Peter Costello says.
And governments around the world are “not in great shape” to respond to the threat of recession, given record low rates and expanding budget deficits, veteran business leader Charles Goode said.
Speaking at an investment conference yesterday, Mr Costello, the former federal treasurer, said fiscal and monetary policy had run out of puff.
“Supply-side” reforms, such as deregulation, were now key to improving efficiency and restoring economic momentum, Mr Costello said.
A day after the International Monetary Fund slashed its growth forecast for Australia, Mr Costello said he did not subscribe to the idea it was “all doom and gloom out there”.
“But personally, I’d say that we need to turn to another arm of policy which has been long forgotten and that’s the supply side,” he said at the Citi investor conference in Sydney.
“Monetary and fiscal policy has run its course, so we have to do something on the supply side to take away some of the handbrakes and help boost supply.”
The Federal Government has been under pressure to ditch its commitment to a Budget surplus and instead fuel the economy by lifting spending.
But Mr Costello said he didn’t believe this had much appeal.
The Government, he said, had worked hard to rein in the deficit, and was reluctant to “give it all away”.
“If you … say any deficit is permissible, then as a treasurer you just shell out money to any cause,” he said.
“If a $10 billion deficit is permissible, then why not $20 billion, $30 billion or $40 billion?”
When he was treasurer, Mr Costello set up the Future Fund he now chairs, to fund public-sector pension liabilities. It now has more that $160 billion under management.
In a report released overnight Tuesday, the IMF cut its forecast for Australia’s economic growth this year from 2.1 per cent to 1.7 per cent.
Separately yesterday, Mr Goode said he was concerned about the state of the economy in Australia and overseas, especially with low interest rates and growing government debt at a time of political and economic disruption.
Mr Goode, who chairs investment company Australian United Investment, and sister company Diversified United Investment, said at the companies’ annual meetings: “With low interest rates worldwide and budget deficits, the authorities are not in great shape to respond to an ill-wind that could lead to a recession.”