RBA Governor urges Government to borrow and spend

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Departing Reserve Bank of Australia (RBA) Governor Glenn Stevens used his farewell speech to implore Prime Minister Malcolm Turnbull to borrow and spend to dial up growth.

Mr Stevens believes the nation is in denial over the need for stronger decisions on budget repair and that the Government should take greater responsibility for spurring on economic demand through infrastructure investment.

Mr Stevens believes we can no longer rely on interest rate cuts alone to dial up economic growth and that while cuts still had some effect, they worked by encouraging private borrowers to borrow more.

“In Australia, gross public debt, for all levels of government, adds up to about 40 per cent of GDP. We are rightly concerned about the future trajectory of this ratio. But gross household debt is three times larger – about 125 per cent of GDP. That is not unmanageable – but nor is it a low number. It’s an interesting question which sector would have the greater capacity to take on more debt, in the event that we were to need a big demand stimulus,” said Mr Stevens.

Mr Stevens has held the job as Governor of the RBA for more than a decade and, in the last few years, has declared that Canberra needs to wake up to the challenges facing the nation.

“The case for governments being prepared to borrow for the right investment assets – long-lived assets that yield an economic return – does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances,” he said.

Read more at www.rba.gov.au
Read more at www.afr.com
Read more at www.smh.com.au

Opinion: Invest in our future

The level of debt held by Government in Australia is always strongly debated in the lead up to Federal elections, with both sides of politics promising to tackle debt levels. I was pleased to see the departing RBA governor yesterday offering a different opinion on debt in his farewell speech.

For the average Australian, taking on a massive home loan debt is seen as move towards securing their financial future. With international lending rates currently so low, it makes sense for the Government to take a similar approach; borrowing more to invest in the assets that will set Australia up for decades of growth.

Previous governments have come out in support of Australian innovation and told small, medium and large businesses to back themselves to succeed. It’s now time for the Australian Government to do the same by preparing to borrow and invest in long-lived assets that will yield an economic return.

What do you think? Should Australia make strategic investments over the next decade with the specific goal of increasing economic growth? Or should we focus on reducing Government debt to $0?

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87 Comments

Total Comments: 87
  1. 0
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    With interest rates at an all time low, yes, it’s obviously time to borrow and build infrastructure.

    I don’t know how anyone could argue with that.

    • 0
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      I agree – the RBA has been left to do all the lifting – the government are just leaning to use that twat Hockey’s words.

      Governments don’t have the same budgeting problems as households and can take on far more debt. Most people don’t get that – and the government panders to their perceptions.

      They need to have complimentary fiscal policies to assist the RBA – but probably won’t do anything until it is too late – as usual.

    • 0
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      Agree with you Reasons.

      BTW the word you want in you second last line is “complementary”.

    • 0
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      Reasons- You are incorrect. The RBA merely sift through figures that have been created by workers- yes workers. These werkers include each and every small medium and big employment group, that create products that sell. The outcome of all those workers is placed into accountants’ books from which these RBA “oracles of doom” make their review. These RBA people do absolutely nothing except create negative comments which sends ripples through the business community: from small, one man bands, to the big fullas. Without the RBA, the commercial world could be a better place. They are like headmasters bragging about the end-of-year results of hard working students.At least headmasters do something during the year to assist their students.

  2. 0
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    Stupid idea as the Government already has way too much debt. Time to reign it in and stop mortgaging our kids and grandkids future.

    • 0
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      OG it is people who fall for the misinformation about debt who are the real threat to our grandkids’ future. Invest to grow the economy. Don’t you get that? Far smarter than giving the rich more taxation favours. That money would be squirrelled away by the scrooges and their would be NO JOBS & NO GROWTH.

    • 0
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      I disagree. It would be better to reduce the company tax rate and get more revenue to fund the infrastructure. Why do you think Trump wants to reduce the company tax in US to 15%?

      Also can you risk the government building anything? No real accountability for the costs at all. NBN a good example.

    • 0
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      OG – you do realise that government TAX is a government’s ONLY revenue – and if they drop the tax – they immediately get LESS revenue?

    • 0
      0

      Go tell that to the Greeks & Spanish Batara.

    • 0
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      A lower tax rate to companies does not mean they will pay less tax. I know of a company who made $10 million and paid a tax specialist $7 million so that they paid no tax on it. With a lower tax rate then companies would be more inclined to pay more tax as it become uneconomic to paid tax professionals to save tax.

      Also if you know anything about taxation you will realise that if someone takes dividend out of a company they will have that dividend taxed at their rate less what they tax the company paid. If all the income is distributed then the tax rate paid is that of the individual which is the same no matter what the company tax rate is. Even if all the income is not distributed now it will be in the future.

      Why do you think Trump wants to lower the company tax rate in the US to 15%? Collect more tax!

    • 0
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      What a load of tripe, OG. Lower tax rates will make companies pay more? Garbage! Lower tax rates will mean they will pay less, and foreign companies will pay less to the ATO and more to the tax office in their home country. It’s an idiotic notion that we can’t afford.

    • 0
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      Ha ha Rainey you really have no idea what happens in reality.

    • 0
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      Old Geezer, how do you expect revenue to grow by cutting company income tax rates?

    • 0
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      It’s called the multiplier effect. If you cut taxes there is more money to spend to create more revenue which due to the multiplier effect produces more tax payable to the government coffers. Likewise if you increase taxes there will be less revenue and less tax payable.

    • 0
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      It’s actually called trickle down economics. The theory is the recipients get the money and spend it.

      And it is now totally discredited.

      The reality is that history now documents that the rich keep the money and get richer – and the poor get poorer.

      It’s a scam perpetrated by the elite on the working class.

      And it just doesn’t work.

  3. 0
    0

    What a fool. No wonder the reserve bank has been getting it all wrong for years.

    Big government spending always gives heaps to a few large players, jobs to a very limited sector in the construction industry, & that being mostly the basically criminal Builders Labourers Federation, & then depends on a trickle down which never reaches us.

    Anyone seen the money from heaven from the last time?

    Obviously this clown approves in Rudd running up the debt with fool schemes, [pink bats anyone?] & our idiot current PM spending $50 billion to buy $20 billion worth of subs, built in the failed state of South Oz.

    God help us, because these fools wont.

  4. 0
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    Only Blind Freddy could not see the wisdom in this advice. I wish Glenn was PM instead of the craven nincompoop we have who is so focussed on his party room opinion that he fails Australian society every time. Pull finger Mal and do something smart for the first time since last September when you knifed Abbott – that was smart but since then you have been dumb and dumber.

  5. 0
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    Yes, Glen Stevens’ comments are absolutely correct. Government debt is a different entity to private debt. Government debt is necessary for nation building and ongoing development. Our nation has already been outstripped by many “developing” nations across Asia both in transport infrastructure and information and communications technologies. I am concerned about the difficult lifestyles that many of succeeding generations of Australians may face if we do not act now to promote infrastructure development, which can only be financed by government borrowings.

  6. 0
    0

    In one’s own home we try to live within our budget and not get ourselves into debt IF WE ARE WISE. The Government should do likewise. Get rid of debt first and then when that is in order then go ahead and look at our infrastructure. To me that is plain common sense.

    • 0
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      Take it you never bought a house then. Worried about the debt

    • 0
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      No, it’s not common sense. It’s ill-informed, unthinking, right wing dogma.

      Did you actually read the article?

    • 0
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      Batara, you can only get a loan for a house if you have the equity. We are selling all our assets. So what would we be putting up as equity? Our children’s future. I realise you need to invest for future growth but we really need to make sure what we use those borrowing for will be economically viable. i.e. a loan to give retirees medical care would not be wise (nice but not wise).

    • 0
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      By the time we get there, Pamiea, there will be no means of earning a living so you can stay in your house. That is the difference. Governments need to BUILD – not sustain as is.

    • 0
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      Except the government can print money legally and you can’t. Sovereign debt is not like household debt.

      Forget inflation because there isn’t any and won’t be any unless the IMF create it.

      The LNP should have printed $AU when they were worth $1.08US and built with it or used it to pay down debt.

      We were in a boom with a high dollar and they missed that opportunity.

    • 0
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      Rae there is a surreal level of inflation. A house in Sydney has gained $30k per year since 1986 just sitting there without any improvements whatsoever.
      The government is fluttering the idea of increasing the GST from 10 -15%. A stamp went from 60c to a $1. etc etc. What we don’t have is interest bearing deposits.

  7. 0
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    With a government that has only 5 cents of brain it would be a ‘no-brainer’, but the current mob in Canberra, the moppets would do a better job

    • 0
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      “Now is the time to invest” – what a lot of crap! With the government we have now it would be the worst thing to do. Even IF you were lucky enough to benefit from an investment you would be penalised by the government in greater taxes and/or a cutback in some other kind of entitlement. There was s VERY little business or consumer confidence at the moment and this is mostly because of this government – world instability, terrorist threats, upcoming overseas elections, etc are all secondary to eroding faith and trust after the inept political leadership we now have.

  8. 0
    0

    In the photo Stevens is saying, “I’m up here and the rest of you are down there”.

  9. 0
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    Ah – there are two different types of people in our community. Those who wait until they can afford to spend and those who spend to the limit of their ability working on future interest and capital gain. There is a balance. The later is a sandcastle. It may stand for quite some time but eventually the high tide will wash it away. If you want a strong structure that will last for centuries it needs to be built of rock and no matter what economic climate they will be able to weather the storm.
    Unfortunately, Sydney is being built on tomorrow’s money and everyone gets excited about the price of houses rocketing passed $1m. Those in the pyramid buying are happy – but not their children. Similarly, we can all go on happily spending and borrowing on Australia’s assets- but not our children.
    The reason we survived the global crisis to some extent is we didn’t have the low doc homes and we didn’t borrow against thin air.

  10. 0
    0

    Stevens is 100% correct. Now is the time to start making up for so many years of falling behind in areas like public transport, road repairs, building new schools and hospitals – the list goes on. Instead of selling off infrastructure like ports and ‘poles and wires’ we should be building the Australia of the future. Hey, doesn’t that give us both jobs and growth? Why can’t Canberra’s resident fools get it?

    • 0
      0

      Phil1943, I am not sure where you live however the A1 north and south of Sydney is cutting through pristine farmland at the most astounding rate. The Eastern seaboard is opening up. Its such a shame we didn’t preserve the coast and develop the Great Dividing Range Hume Highway with exit distributors to coastal towns.
      However, Sydney is like a traffic rootball that is strangling itself. We do need to invest in new satellite cities however with only a population of 26 million and no longer having the financial input that Great Britian initially invested in our nation we are somewhat limited. Our new immigrants don’t come with a “dowry” and current policy appears to be to sell off bits of Australia to fund infrastructure.

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