Australia government can borrow more to aid economic recovery, says RBA gov

Australia's top central banker on Tuesday urged the government to borrow more and boost public spending to support the country's economic recovery as that would be "the right thing to do in the national interest."

Reserve Bank of Australia (RBA) Governor Philip Lowe said the foundations of the Australian economy were strong with solid public balance sheets.

He said monetary and fiscal policy measures were also helping to provide "an important bridge" to recovery as Australia faces its worst economic shock since the 1930s with the unemployment rate at a 22-year high. In a speech titled "Covid-19, the Labour Market and Public-sector Balance Sheets", Lowe said direct cash transfers to households and businesses as well as boosting public spending on infrastructure and wage subsidy schemes were examples of how the government could "smooth things out".

"By helping the economy today, these measures also support the all-important confidence," he added.

"So they assist with a return to more normal patterns of spending and consumption, without the need for ongoing fiscal stimulus."

The remarks come as Australia is set to trim the size of its wage subsidy payments and tighten the eligibility rules.

Lowe said using the public balance sheet in this manner inevitably required increased government borrowing.

"For a country that has got used to low budget deficits and low levels of public debt, this is quite a change. But it is a change that is entirely manageable and affordable and it’s the right thing to do in the national interest," Lowe said.

For its part, the RBA has slashed interest rates to a record low 0.25 per cent and launched an unlimited government bond buying programme.

On Tuesday, Lowe ruled out negative interest rates and intervention in the foreign exchange markets as possible policy options