Slowing economy boosts case for public spending cut

The headline in The Australian this morning.

Slowing economy boosts case for Reserve rate cut

Data released yesterday show the dismal turn in the Australian economy. Things have been in a downwards descent for quite some time as data from business surveys, and especially my ACCI Survey of Investor Confidence, have been showing. You can hide it for a while but with the continuing switch from private to public direction of economic activity, the effect is to lower per capita real incomes. It’s slow and decremental but it catches up with you in the end. And this, goodness knows, is not the end.

Meanwhile the government is on its madcap chase to balance the budget using every approach but the right one. If you balance the budget by killing off private sector growth (monthly corporate tax payments, anyone?) you are missing the point since budget balance and higher public outlays is a pretty sorry outcome.

Rates will probably be cut since everyone now expects it but I suspect Glenn Stevens will be very reluctant to have done it. Lower interest rates are a problem, not part of the cure. Lower public spending, however, that would work but macro being the way it is, how is anyone ever going to find out?

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