RBA chief Glenn Stevens seems, based on the evidence of his latest speech, to be still in apparent denial. He rehearses the state of play in the world economy and in the outlook for various sources of demand in Australia's economy. Prudent households are saving. Nervous firms are reducing investment and hiring plans -- and he notes that political uncertainty is fuelling that particular bonfire.
Global growth is still subdued, and China's growth may fall still further. This is an essentially Keynesian analysis.
Not a word from Stevens about Australia's double-digit cost disequilibrium.
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This is surely not because Stevens fails to recognise the problem, more likely because doing so would throw a spotlight on the major dilemma facing the RBA.
Cutting rates further will relieve cost pressures for some, but will do nothing to reduce, and may worsen, Australia's generally high-cost structure relative to competitor nations. Put crudely, Australia has pissed the proceeds of the mining boom up against a wall of gullible voter expectation. In the process, mining companies allowed their cost bases to expand to unsustainable levels.
Cost bases expanded in sympathy in the non-mining parts of the economy in a climate of easier than desirable monetary policy and encouraged by those vainglorious spending programs of the Rudd and Gillard governments.
Restoring Australia's economy to robust health will require massive effort by all Australians.
The budget must be restored to a point where it has a sustainable balance, that is a balance over the course of the conceivable ups and downs of the global and local economies. Ideally there will also be a return to sustainable budget surpluses, but that is for a future government to consider when the basic repair work has been undertaken.
Tax reform is needed to improve incentives and enable elimination of the many nuisance taxes that cost so much to administer. Regulations generally must be slashed, and labour market regulations revamped, to give owners of small business encouragement to create sustainable jobs.
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We voters, gentle readers, soon will need to decide which team is more likely to implement necessary reform.
One hopes the election campaign now under way includes sober recognition by each team of the deep trouble we are in.
Unsustainable budgets, highly uncompetitive industries and struggling small businesses of every variety must be recognised.
The Australian public is not stupid, and the more credible economic case should deliver strong majority government.
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