Morrison warned of economy weakness

SCOTT Morrison is understandably well satisfied with week one of the 46th Parliament.

In lightning speed, the Government delivered on its central election promise; the $158 billion three-stage tax cut plan.

Labor tried to stymie stage three and failed. Anthony Albanese warned it would be “economically irresponsible” to pass those tax cuts now, but ultimately did just that. He conceded what had been obvious from the outset; Labor couldn’t hold up the whole package, as this would have denied immediate tax relief for workers.

The new, leaner Senate crossbench proved to be a much easier dance partner for the Government than its more unwieldy predecessor. Centre Alliance and Jacqui Lambie dealt themselves in as players rather than grandstanding obstructionists.

There was just one problem: Philip Lowe. The Reserve Bank governor fears the $15 billion set to be immediately pumped through the economy via these tax cuts won’t be enough.

The RBA slashed interest rates to a record low of 1 per cent this week.

The Reserve Bank has now used nearly all the shots in its locker to crank up an economy stuck in first gear.

Sometimes actions speak louder than words. This week, the governor deployed both to make sure no one missed the message.

“We should not rely on monetary policy alone,” Dr Lowe said in a direct call for greater effort from the Government.

In an even more pointed comment, the governor warned, “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’s hard to imagine the Reserve Bank boss would feel the need to highlight this truism if he felt the various arms of public policy (the RBA and the Government) were indeed pointing in the same direction.

While the RBA is pumping more stimulus into the economy through interest rate cuts, the Government is striving to return the Budget to surplus, which typically contracts the economy. A surplus, by definition, means the Government keeps more money than it spends.

The Government is hardly about to abandon the surplus it spent an entire election campaign saying had already been delivered.

Nor is the Reserve Bank governor saying the surplus should necessarily be dropped. He’s not arguing in favour of it either.

If the Government and RBA really are working in unison, the money needs to find its way into stimulating the economy.

There’s no chance the Government will let its beloved surplus slip, but it can’t afford any further weakness in the economy either.