Angus Livingston, AAP National Economics Writer
(Australian Associated Press)
Australia’s growth forecasts have been slashed and experts say $20 billion worth of income tax cuts aren’t doing enough to help – but Scott Morrison is still promising a budget surplus.
The prime minister insists his government’s “cool and clear heads” will deliver the first budget surplus in 12 years, even as the economy continues to stagnate.
The International Monetary Fund’s World Economic Outlook predicts Australia to grow at 1.7 per cent in 2019, down from a predicted 2.1 per cent, and also slashed the 2020 forecast.
That 0.4 per cent reduction is four times the average of other advanced economies, which mainly dropped about 0.1 per cent.
“Now is the time for our economic and financial management, one that is about cool and clear heads – it is not a time for Labor’s policies of panic and crisis,” Mr Morrison told parliament on Wednesday.
“Our government had inherited deficits, (but we) will deliver the first surplus in 12 years, because we understand the importance of disciplined financial management.”
Mr Morrison has steadfastly refused to inject extra money into the economy, despite calls from economists, business groups and politicians across the spectrum.
The Reserve Bank of Australia has cut interest rates three times since the May election, down to a record low of 0.75 per cent, in a bid to drive unemployment down and wages up.
Former Liberal treasurer Peter Costello said there were diminishing returns in cutting interest rates much further.
“I just don’t think there’s much stimulation left in monetary policy,” he said in Sydney on Wednesday.
The IMF warned against relying on interest rate cuts to boost economies, and argued for governments to spend some money.
“Monetary policy cannot be the only game in town and should be coupled with fiscal support where fiscal space is available,” the report said.
Labor leader Anthony Albanese said the Reserve Bank can’t keep doing the heavy lifting.
“Underemployment is at record levels. People are saying they want more hours, they want more work,” he said.
Labor has put forward a series of ideas to stimulate the economy without hitting the surplus, including lifting Newstart, bringing forward income tax cuts, giving tax breaks for business investment, and bringing forward infrastructure spending.
So far the coalition has only agreed to bring forward some infrastructure spending, but no projects have been identified.
Treasurer Josh Frydenberg also said the impact of tax cuts has yet to be fully felt.
Since July 1, the Australian Tax Office has issued 7.3 million income tax refunds, with a total value of $20.3 billion.
But consumer sentiment figures from the Commonwealth Bank and the NAB show retail spending is likely to drop even further in September, as Aussies save instead of spend.
The banks’ economists said the record interest rate cuts had spooked consumers, who believed they showed the economy is weak.