Speech Summary Issues In Economic Policy
Address to the Anika Foundation Luncheon
Supported by Australian Business Economists and Macquarie Bank
The speech discusses a range of current issues in economic policy. Focusing on the challenge of ‘negotiating turbulence’, consideration is given to the current economic situations in Greece and China, and the US Federal Reserve's timetable for tightening monetary policy (expected to begin later this year).
On the issue of ‘accepting adjustment’, the speech assesses how the Australian economy is adapting to changing circumstances. Having risen sharply during the ‘mining boom’, resources sector capital spending has fallen recently, and growth in domestic demand more generally has been subdued. The speech notes that household attitudes to debt and saving have also changed. Many households have become more prudent about debt and are holding more liquid assets. It is asserted that the effect of easy monetary policy may be somewhat lessened as a result, but that from a medium-term perspective, healthier balance sheets among formerly more-indebted households should be seen as ‘a good thing’.
There is discussion of the effect of a more restrained attitude to debt and spending (by households and governments) on domestic demand and employment, and the role of a lower exchange rate in this adjustment. Explanations are also offered for the current better-than-expected set of labour market outcomes.
The speech then looks at the issue of ‘maintaining stability’ and explains the function of monetary policy in prompting risk-taking behaviour and the importance of ensuring that such behaviour does not move beyond a certain point and become ‘dangerous’. It is emphasised that in meeting the challenge of securing economic growth in the near term, the stability of future economic performance must be considered.
Turning to ‘securing prosperity’, it is asserted that the economy has coped well through a lengthy period of shocks, although the transition in growth has not been perfectly smooth. In considering how to build on the nation's broadly successful recent economic record, the speech highlights the need for a discussion about potential growth, in per head terms, and outlines some of the wider benefits of a productive economy. The importance of entrepreneurship and innovation is then discussed in the context of ‘reforms’ that are central to raising income per head. The speech closes by suggesting the need for a positive narrative for economic growth that can help to produce an even brighter future.