The government is a little cautious and “out of touch” with the strength of the economy, according to a leading economist.
In a speech at the Charter Hall Property Forum, Westpac’s chief economist, Bill Evans, stated that the Australian government is optimistic on key statistics that the bank sees as unachievable.
“The government is a little cautious about a big spending program, given they still believe the economy is going to grow around 2.5 per cent,” he said.
According to Westpac’s analysis, the government should be less optimistic about the growth of the Australian economy and instead give a growth figure of 2.25 per cent, with Mr Evans considering that figure “the most you can hope”.
He disputed the government’s expectation that the economy will grow by 2.75 per cent in 2020-2021, instead arguing growth will be similar to what occurs in the 2019-2020 financial year.
“They are also talking 3.5 per cent wage growth in a couple of years, so they are out of touch with the strength of the economy,” the economist said.
Fiscal stimulus
With the Reserve Bank of Australia calling on the government to support the recent rate cuts, Mr Evans said he does not believe the government is in any rush to provide fiscal stimulus.
Instead, the chief economist said he expects that getting the budget back in the black will be a priority for the Australian government.
“At the moment, they are not under a lot of political pressure to do much,” he said.
“Their major objective is to deliver a surplus as it was a major election promise.”
For Mr Evans himself, he admitted that he was “not expecting to see any major government policies to try and boost demand”.
As a result, instead of a major fiscal stimulus, the economist tentatively predicted that the government might opt to go down the path of stimulating the business sector.
“Next budget would be the time and would probably focus mainly on investment allowances, accelerated depreciation, things to try and get the business sector moving.”
With the previous changes to the tax system, the chief economist thinks that the government believes it has done enough through taxes to increase productivity in the Australian economy.
“As you know, there’s $8 billion in tax cuts that have gone into the economy in the last month or so, with another $15 billion in a few years,” Mr Evans said.
“I think they feel they have dealt with the tax story, it’s more about supporting business.”
The chief economist also went on to dismiss the use of an infrastructure program to support the Australian economy, stating that “the idea of a massive infrastructure program isn’t going to work because, at the moment, you need a two- to three-year program to analyse the environmental implication of new projects”.
“Getting the economy moving in the short run is unlikely to be a major government initiative,” Mr Evans concluded.
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