Despite calls to the contrary from federal treasurer Scott Morrison, now is not the time for the government to rein in spending according to Professor Ian Harper, the newest member of the RBA board.
In an interview with James Glynn from Dow Jones newswire, Harper, whose first meeting was August’s decision to cut rates to 1.5%, said that aided by low interest rates in the Australian economy, government spending has most likely been an important factor in keeping the economy growing.
“There isn’t any sign of a recession, at least not in my books, on the horizon here. But if there was a time to make sure that fiscal policy was doing its thing, then you might argue that now is the time,” Harper said.
Yesterday TD Securities’ head of Asia-Pac research Annette Beacher issued a strongly worded warning that Australia’s “ticking fiscal time bomb” is untenable.
But Harper seems unmoved by such arguments and reiterated a theme his colleagues at the RBA have spoken about over recent years. That is, the remarkable reality that Australia is currently managing a painful post-mining boom transition without falling into recession.
Harper said: “What’s clear is that in the past, we have not recovered, or transitioned from the sort of experience we are currently going through, without a recession.”
Asked about the debate over Australia’s sovereign rating, Harper said he didn’t think the loss of the nation’s AAA status would have a material impact on the economy.
“At the moment, the world is turned on its head,” Harper said. “I don’t think we know precisely what the impact of that is going to be on interest rates. Clearly it is not a case that the sky falls in.”
On the topic of the RBA’s inflation target of 2-3%, Harper said: “It worked mate. We’ve had an outstanding record.”