Australia in Trouble

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    Australia is at debt’s door, warns Reserve Bank of Australia chief Glenn Stevens
    • EXCLUSIVE Simon Benson National Political Editor
    • The Daily Telegraph
    • February 05, 2015 12:00AM
    RBA cuts cash rate to new record low

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    THE governor of the Reserve Bank and the new head of Treasury have delivered a dire warning to Cabinet that if the government’s spending cuts, being blocked by Labor and the Senate, fail to get passed, then the budget is at risk of never getting back to surplus.
    The prediction of the nation’s future finances without structural reform was made in an extraordinary briefing to Cabinet on Tuesday in Canberra by new Treasury Secretary John Fraser and RBA boss Glenn Stevens.

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    It is the first time Mr Stevens has briefed Cabinet in his eight years as RBA governor.
    The 20-page slide presentation showed the budget position continuing to worsen, and that even with an economic growth path of 3 per cent per annum the budget would continue to be in deficit beyond the 10-year prediction made in last year’s budget forecasts.
    Labor has labelled the government’s spending cuts as “unfair”. However, Mr Fraser’s presentation to Cabinet showed the government was now borrowing almost $110 million a day to pay its bills due to interest payments on debt and the growing Budget deficit, which the Coalition inherited from the previous Labor government.



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    Glenn Stevens, governor of the Reserve Bank of Australia.


    The projections show deficits until 2025, but now assume further deficits even beyond the 10-year outlook without structural reform to the Budget.
    Mr Stevens is believed to have warned about revised global economic growth figures.
    Treasurer Joe Hockey has been sharing the Treasury forecasts with colleagues over the past few weeks to highlight the mounting problem the government faced this year unless it could get Senate support for spending restraint.
    The challenge has become even more difficult with Mr Hockey promising to inoculate families from any pain in this year’s budget while trying to find further savings.
    The long-term forecasts from the country’s top two economic minds followed the RBA’s rate cut on Tuesday which will help alleviate pressure on the family budget.
    Treasury has revealed that the average family will now be saving $190 a month due to the combination of the scrapping of the carbon tax, lower petrol prices and the new 25 basis point cut to interest rates.
    It showed that the fall in petrol prices amounted to an equivalent cut to the family budget of a 60 basis point cut to interest rates.
    Mr Hockey yesterday confirmed Cabinet had been briefed on the economic outlook. “The new Secretary of Treasury and the Secretary of the Department of Prime Minister came in,” he said.
    “We talked at length about the challenges, but also reaffirmed our commitment to the plan ahead, which is jobs, families, small business and how we can grow prosperity.”
 
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