Reserve Bank governor Philip Lowe says the central bank has not been hindered by the Federal government’s ambition to deliver the first budget surplus in 12 years, pointing to the Coalition’s recent tax relief package as an important economic stimulant.
Dr Lowe told a Sydney audience on Thursday he would prefer government present a strong agenda to foster business investment and jobs, but added the tax cuts passed last month were an important measure during a time of low household spending and wage growth.
“Last year taxes paid by the household sector was 10 per cent, and income rose by four (per cent),” Dr Lowe said.
“One reason for that weak household spending and weak income growth is that people have been paying a lot of taxes, so I think it was appropriate to give some of those taxes back.”
Australian National University professor and former RBA board member Warwick McKibbin is among those who say the federal government should not be afraid to spend – and even go into debt – if the investment is on worthy projects.
Dr Lowe also repeated his view that state and federal infrastructure programs appeared strong, while lower interest rates, as well as a pick up in the resources sector augured well for the economy.
Dr Lowe said he was also “reasonably confident” that he and Treasury were on the same page regarding the inflation target, amid reports Treasurer Josh Frydenberg was pondering lowering the central bank’s target.
Mr Frydenberg had said he would take his advice on the issue from Treasury, rather than the Reserve Bank or Dr Lowe, who believes lowering the inflation target to make it easier to meet could damage the nation’s economic credibility.