Aiming for budget surplus is the ‘wrong target’, says Reserve Bank of Australia governor Philip Lowe

RBA governor Philip Lowe: ‘We can get to lower debt to GDP by increasing GDP quickly.’ Picture: NCA NewsWire / Jeremy Piper

And into the lion’s den he went.

Reserve Bank governor Philip Lowe spent 47 minutes taking questions from the Sydney media pack at the Walkley lunch on Tuesday. It is likely to be his last unscripted outing until after the election.

There is danger for any central banker out and about during an election campaign when fiscal stimulus and monetary policy is hotly debated.

In a seven-minute speech, the governor would not be talking about monetary policy. However, he was prepared to take questions on monetary policy.

Given the choice what journalist would not prefer a cosy unscripted Q&A to a set speech?

Much ground was covered: the governor’s view on a shift in inflation psychology out in the market, unpacked by my colleague Eric Johnston; the need to charter a decline in the debt-to-GDP ratio, so much more effective than trying to charter a return to budget surplus; and the idea that miscreant governments that fear freezing of their assets by Western countries could increase demand for gold and cryptocurrencies.

Lowe is determined not to die wondering if he tried hard enough to get wages growth going again. He doubled down on the once-in-a-generation chance to achieve full employment, thoughtfully shaking off any criticism that he is behind the curve on a rate rise.

Since Lowe’s last public outing, the US Federal Reserve has lifted rates by 0.25 per cent with a hawkish outlook for further rises, the government has flagged a cash splash in the upcoming budget and supermarkets say food prices will be higher and stay that way for longer.

Asked what he felt about the government loosening fiscal policy at the same time monetary policy was tightening, Lowe said he would not be drawn on fiscal strategy close to the election.

“It must be unambiguously good if people are getting jobs and paying taxes,” he said, adding he was not particularly concerned by some conflict between monetary policy and fiscal policy.

In his brief address the governor talked to the RBA’s relationship with the press. Under pressure from some camps to do more media, he noted that the RBA ranked No. 1 in the amount of coverage of any central bank.

“We get the gold medal for coverage of the central bank. It’s probably something to do with our fascination with housing prices, high debt and we have variable rate debt,” he said.

Lowe also resisted a model of greater transparency on board decision making.

In the US Fed board members can talk openly on monetary policy and the Fed releases a forward dot plot to signal the outlook for interest rates.

“If you were to go down the route of every single board member putting their forecast into the public domain through the dot plots then you would need a different type of board. I personally think the type of board we have has serviced the country very well,” he said.

Unlike other central banks, RBA board members are not monetary economists, nor full- time employees. They hail from business or other walks of life.

Lowe said he was not agitating for change.

“The non-economists are very good at balancing risk,” he said.

Nor is he interested in new board members that might reflect growing community concerns in areas like climate change (to which he has just lost his deputy Guy Debelle).

“I push back on the idea that people are there to represent constituencies,” Lowe said.

Lowe clearly believes the government should prioritise lowering the GDP-to-debt ratio over any return to surplus. As Coalition and Labor battle it out for the title of better economic manager the talk at grassroots level is more budget repair than debt ­ratios. But Lowe sees a surplus as the wrong target.

“We’ve borrowed a huge amount of money against future income, we have got to make sure that future income is there and is strong. This is where the productivity agenda is so important. We can get to lower debt to GDP by increasing GDP quickly.”

The governor called for more work on infrastructure, skills development, R&D, taxation and industrial relations.

“It is the best way of dealing with the debt situation rather than going back to try and run surpluses again on lower future income. I don’t think that makes sense,” he said.