Treasurer Josh Frydenberg has backed Peter Costello’s scepticism of the economic benefits in further interest rate cuts.
Mr Costello, treasurer in the Howard government and a key mentor to Mr Frydenberg, believes a widely expected rate cut next week will have limited impact.
“Peter Costello is absolutely right that it’s a law of diminishing returns once you start to reduce interest rates below a certain amount, the impact on the economy is reduced,” Mr Frydenberg told ABC radio on Friday.
The Reserve Bank board is due to meet on Tuesday, with the official cash rate tipped to fall from one to 0.75 per cent after similar cuts in June and July.
In a speech given in Sydney on Thursday, Mr Costello also said the coalition should resist calls to ramp up federal infrastructure spending, arguing states were better placed to deliver roads and rail.
Mr Frydenberg said the projects were joint responsibilities.
“They build a lot of it and they also help fund it, and obviously that is where great care needs to be taken to choose the right projects, but also too to help fund them,” the treasurer said.
Mr Costello wants the government to address structural imbalances built up over 28 years of economic growth through reforms to lift productivity and wages.
“Our view is that the hard reforms that Peter is talking about, the productivity reforms, are very much on the government’s agenda,” Mr Frydenberg said.
Labor leader Anthony Albanese interpreted Mr Costello’s speech as a criticism of the Morrison government’s economic agenda.
“He’s joined the chorus saying this government has no economic plan for this country,” Mr Albanese told reporters in Sydney.
He said Reserve Bank governor Philip Lowe was calling for stronger wage growth while the government was attacking unions and driving down pay.
“(That’s) precisely the opposite of what the economy needs.”
Finance Minister Mathias Cormann said the focus was on boosting productivity and cutting unemployment through including tax cuts, skills training, deregulation and investment in infrastructure.
“In the end sustainable wages growth will come from stronger economic growth and that’s absolutely what we’re focused on,” he told Sky News on Friday.
He said the government would continue to monitor economic data to see if policy settings should be adjusted.
“We obviously believe that we’ve got the balance right with our pro-growth agenda which is reflected in the budget,” Senator Cormann said.