In a speech on Thursday the 9th February, Governor of the Reserve Bank Phillip Lowe outlined an economic “to-do” list for 2017 and in doing so “implied criticism of the Turnbull government’s weak performance.”
What does he think should be done?
- He has supported the Turnbull government’s intention for a cut in the company tax rate and, by implication, the government’s plan to cut the rate from 30 per cent to 25 per cent over 10 years, at a cumulative cost to revenue of $48 billion, and then a continuing net cost of $8 billion a year.
- On the contrary to the government’s argument that cutting company tax would do wonders for “jobs and growth”, Lowe’s argument is more negative: if we don’t do it while other countries are doing it we’ll lose foreign investment – and, presumably, jobs and growth.
- He believes that we should “rebuild our fiscal buffers”, by which he meant getting the budget back into surplus. Our former good record of successive surpluses and negligible net government debt “provided us with a form of insurance.”
- “It meant that when difficult times did strike last decade, fiscal [budgetary] policy had the capacity to play a stabilising role. We had options that not all other countries enjoyed.
- Lowe also notes that the task of returning the budget to surplus is complicated by the “need to make sure that our tax system is internationally competitive”.
- “One example of this complication is in the area of corporate tax, where there is a form of international tax competition going on in an effort to attract foreign investment,” he said.
- “Like other countries, we face the challenge of responding to this, while achieving a balance between recurrent spending and fiscal revenue.”
- Due to a strongly growing population which, Governor Lowe believes in the need to invest in sufficient infrastructure, including transport infrastructure, and failure to do so can “impair our ability to compete and be as productive as we can be”.
- Furthermore He believes that we need to “invigorate productivity growth”
- ‘There is no shortage of things that could be done to lift our performance. The challenge is that most of these ideas require difficult political trade-offs.”