Glenn Stevens is today delivering his last public speech as governor of the Reserve Bank of Australia, where he steps down next month after 10 years in the job.
Stevens has warned in the past on the risks political intransigence poses to economic reform and fiscal policy, but today he has delivered his starkest warning yet, saying that it might well take a crisis to force legislators to finally make some tough decisions on public spending.
Here’s the key excerpt (emphasis added):
Many difficult choices will need to be made along the path of budgetary adjustment. At present, general public debate starts with commitment to the need for reform and for putting public finances on a sustainable medium-term track. But when specific ideas are proposed that will actually make a difference over the medium to long term, the conversation quickly shifts to rather narrow notions of ‘fairness’, people look to their own positions, the interest groups all come out and the specific proposals often run into the sand. If we think this rather other-worldly discussion will not have to give way to a more hard-nosed conversation, we are kidding ourselves. That will occur should there be a moment of crisis, but it would be better if it occurred before then.
Coming from a central banker, this is a withering assessment of how the nature of contemporary political debate is derailing attempts to start repairing the budget and unlock much-needed productivity gains in the economy.
Stevens didn’t mention any specific proposals but it is not much of a leap from here to the so-called “zombie” spending measures including changes to health and education spending and reductions in Family Tax Benefits that await the approval of the new Senate.
The full speech is here.