Budget-led boost tipped to help the economy through rough trot

He said a range of factors, all coming together at the same time, meant the economy’s current troubles were likely to be short-lived.

“The election result reduced policy uncertainty, there are big tax cuts hitting pockets in a few weeks, there’s interest rate cuts, plus reduced pressures on bank funding costs, a loosening of the noose on lending housing by the regulators plus a modestly lower Australian dollar,” he said.

“That combination means that the current slowdown looks to be well contained.”

Treasurer Josh Frydenberg said the tax cuts and interest rate cuts, along with the government’s infrastructure program, would help underpin the economy.

Treasurer Josh Frydenberg says he is confident tax cuts and lower interest rates will filter through the economyCredit:Dominic Lorrimer

“Now that the tax cuts have been legislated, $8 billion extra a year will flow back into the pockets of taxpayers,” he said.

“Added to that the combined effect of the cut in interest rates for a family with a $400,000 mortgage is at least $1400, and there should be a positive impact on economic activity.”

Mr Richardson cautioned there were still risks that, if they came to pass, would mean the RBA would have little ability to boost the economy, and the budget could fall back into deficit.

“The Reserve Bank is busily eating into its own rainy day fund. So let’s hope it doesn’t rain; policymakers haven’t left much wriggle-room if it does,” he said.

Shadow treasurer Jim Chalmers said the report’s warnings about slow wages growth and the lack of monetary policy ammunition for the Reserve Bank pointed to the government’s economic policy failures.

“The RBA has been forced to pick up the slack where it can, because the government has vacated the field when it comes to economic growth,” he said.

“This third-term government needs to take responsibility for the floundering economy on its watch, which is defined by weak consumption, feeble growth and stagnant wages.”


While most domestic debate has focused on the government’s tax cuts, the Organisation for Economic Co-operation and Development said Australia had to go much further.

The OECD used its annual “going for growth” report card on its members to urge the government to revisit broad tax reform, saying it should look at cutting the company tax rate for large firms, lift the rate of the GST and broaden its coverage.

It said these tax changes, plus a move by states to overhaul their land taxes, could bring “substantial benefits” to the country.

“Raising medium-term growth should focus on improving the business environment and strengthening competition, boosting skills and improving the efficiency of the tax system,” it said.

The same report urged the government to “firm up” and improve its approach to climate change, saying the government needed to bring into operation a market-based approach to reducing greenhouse emissions.

“Continued challenges in climate-change policy have warranted inclusion in the key priorities,” it said.

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