Frydenberg needs to focus on genuine reform plan to boost growth – The Age

The Age has sympathy with these arguments and we are certainly not among those who reject using fiscal policy to manage the economic cycle. For instance, the cash splash by the ALP in late 2008 helped Australia avoid recession during the global financial crisis. The question is whether such an approach is necessary now.

From a political point of view, abandoning or even delaying a surplus would be an embarrassment to the Coalition after it spent so long complaining about Labors debt and deficit disaster.

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But the case for trying to post the first budget surplus in a decade is not only about political one-upmanship. It would also send a positive signal to global financial markets and foreign investors. Fiscal stimulus can have bad consequences. Spending measures can be wasteful and, politically, they can be a substitute for harder reforms to boost competitiveness and productivity. These are two areas in which Australia lags behind many of its global peers.

The biggest argument against stimulus, however, is that, for now, the economy is simply not that bad. This is not the GFC. Australia is still growing and in coming years there is hope for an improvement.

Treasury is forecasting that growth will increase in 2020-21 to 2.75 per cent. Consumers, who have been on strike this year, can be expected to gradually start to spend more because low interest rates and rising house prices in Melbourne and Sydney should help.

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Australia should also benefit from a better global economy amid relief that the US and China are stepping back from the brink of a trade war. As long as that forecast is accurate, Mr Frydenberg is justified in maintaining the current economic settings.

However, that is not an excuse for doing nothing. The government is happy to devote time to sideshow issues such as its religious freedom bill or mouth platitudes about cutting red tape. Instead, it should seriously re-prosecute some of the important policy debates discarded during this lost decade starting with tax, workplace relations and energy reform.

The Treasurer needs to develop a genuine economic reform plan to boost growth rates. Without one, surplus or not, he deserves to be punished at the next election.

Originally posted here:

Frydenberg needs to focus on genuine reform plan to boost growth - The Age