Colin Brinsden
(Australian Associated Press)
New Treasury boss Steven Kennedy doesn’t believe there is a crisis warranting immediate spending from federal government, saying he is “cautiously optimistic” about Australia’s economic outlook.
Addressing senators in Canberra for the first time since taking on his new role last month, Dr Kennedy believes the policy settings are right for the economy to strengthen.
“I’m cautiously optimistic about the way the economy is going to strengthen,” Dr Kennedy told the Senate economics committee on Wednesday.
While there have been widespread calls for the government to do more, with economic growth at its slowest in a decade, Dr Kennedy said stimulus responses like those seen during the global financial crisis are “uncommon”.
“A feature of the current weakness in the global and domestic economy is heightened uncertainty among consumers and businesses,” he said.
“Given this uncertainty, medium-term fiscal and monetary policy frameworks can play an important role and contribute to a stable and predictable environment that is supportive of growth.”
He said the the tax cuts that were instituted this year are having a positive effect on the economy.
The Treasury secretary said the drought has taken its toll on economic growth, but employment growth has been very positive, even though this has not resulted a marked lift in wages.
He said while there are a range of explanations for this, whether it be a change in demographics, technological or globalisation, it was a global phenomenon.
He said the most sustainable way to get wages up is through labour productivity.
But he warned there is still the potential for global shocks.
He said the de-escalation in trade tensions between China and the US is a welcome sign, but the situation around the UK leaving the European Union remains unclear.
“I am in no better place than perhaps anyone here to comment on the Brexit arrangements, but if they were to resolve themselves they would all be providing an upside boost to the global outlook and that would assist Australia,” he said.
Dr Kennedy has just returned from Washington where he attended International Monetary Fund meetings and said it was pleasing to hear some more confidence in the outlook, particularly in the US.
But European countries continue to suffer weakness.
Last week the IMF downgraded its growth forecast for Australia for this year down to 1.7 per cent from 2.1 per cent.
As of June, Australian economic growth was running at 1.4 per cent, the slowest pace in around decade.
In the IMF’s latest regional outlook for Asia and the Pacific, released on Wednesday, the authority also noted the region’s growth will continue to lose pace in the short-term.
“Real estate markets will need to be closely monitored and appropriate macroprudential measures implemented,” the report states.
But in a media briefing on the region on Friday, deputy director for the IMF’s Asia Pacific department Jonathan Ostry said he believes Australian policies have reacted appropriately to the slow down.