Here's some advice from a former US Treasury Secretary for Joe Hockey

Larry Summers. Picture: Getty Images

Australia is an economy in search of a kick start.

The RBA has talked the Aussie dollar down, cut rates and signalled more will come and entreated consumers to spend and business to loose it animal spirits.

Yet the RBA is still forecasting below trend growth this year.

What’s missing in an economy which appears to have solid underlying strength, very low interest rates and still strong employment, where more Australians than ever before are in the workforce than ever before, is confidence.

A large part of this lack of confidence in the Australian economy can be placed squarely at the feet of the Treasurer Joe Hockey, the Budget he delivered last May, and the associated policies which were viewed by many in the community as unbalanced and unfair.

Equally political instability, be it Senate intransigence or leadership instability, make the operating environment and thus investment intentions of business uncertain. And in case you think this is woolly stuff, Ian Narev, chief executive of Australia’s biggest bank, CBA, felt the need in his half-year results statement yesterday to point to weak confidence as “a significant economic threat”.

So with the Prime Minister signalling a more populist budget, which the Treasurer is resisting, here’s some advice from a man who once steered the US Economy as Treasury Secretary under Bill Clinton which just might help frame this year’s Budget.

In an interview with McKinsey Insights Summers said:

Confidence is the cheapest form of stimulus. Governments need to recognize that fairness and inequality and sharing the benefits of growth more widely are crucial issues going forward, but they need to do it without invoking a politics of envy. That can be very debilitating to business investment.

The Australian government and Joe Hockey’s first budget failed this test in May last year.

They have 3 months to ensure they don’t make the same mistake again in 2015. Otherwise “below trend growth” will become Australia’s new normal.

NOW READ: Australia’s top economic officials have warned the Abbott government that low confidence is holding the country back

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