London: Two of the top stewards of Australia’s economy have issued an unusually blunt warning to Parliament and voters, saying they must accept the need for “tough policy decisions” to start repairing the budget now.
In a speech in London, Treasury Secretary John Fraser said government spending must be cut, while in an interview to mark his looming retirement from the Reserve Bank, Governor Glenn Stevens urged Australians to take part in helping the political system craft a way forward to fix the budget.
Mr Fraser said Australia’s debt was growing rapidly and had to be curbed, but stressed to business leaders that the economy was fundamentally strong with this week’s GDP figures confirming 26 years of uninterrupted growth.
He conceded Australia’s strong economic performance and relatively smooth transfer from the mining investment boom to a services-based economy had made it more difficult to convince voters of the need to pay down the debt.
“We feel prosperous, it’s great country, we go to sporting events and see everybody happy and you think ‘What’s the problem?’
“There is a problem which is why we keep banging the drum about it, and it’s a problem also that is growing,” he said.
He said the period of fiscal consolidation would be made more difficult than in the 1980s because of the falling terms of trade, meaning Australian exports are being sold at a lower value which is contributing to lower wages growth and lower government revenues.
Mr Fraser said Prime Minister Malcolm Turnbull’s one seat majority combined with the largest ever Senate crossbench “sadly” posed a “challenge” for the government. But he said this meant the government needed to secure widespread support for the “tough policy decisions and tough communication issues.”
“The government’s very much alive to do something about our fiscal situation and to do that by cutting government spending,” he said.
Governor Stevens told the Financial Review the political process was partly to blame for stalling budget repair.
“There’s a tendency for a proposal to be put forward and if there’s a single person in the country worse off they will be on TV that night.
“It’s up to the political process to craft a way forward on all this stuff … we’re all going to have to take part in that.
“That actually means that all of us in some sense have to accept we don’t get stuff for nothing.”
Both Mr Fraser and Mr Stevens said the political dysfunction was not confined to Australia.
“It seems to be difficult elsewhere as well,” Mr Stevens said. “If we are looking for causes for the difficulty the political process has in getting traction, we probably shouldn’t confine our search only to domestic measures.”
Mr Fraser nominated government spending as the main way of balancing the budget but declined to highlight any areas, like family benefits to the middle class as an area ripe for cutting.
He said if the public did not accept government spending cuts this would lead to higher taxes which would slow the economy.