Josh Frydenberg asks big banks: can we help you to lend more?

The Morrison government is urging the banks to lend more, planning to lift spending on drought relief and accelerated infrastructure spending.

Treasurer Josh Frydenberg. Picture: Kym Smith

The Morrison government is urging the banks to lend more, planning to lift spending on drought relief and leaving the way open for accelerated infrastructure spending as it hopes for a boost in the annual economic growth rate to 1.6 per cent before Christmas.

On Friday, Josh Frydenberg met ANZ chief executive Shayne Elliott and NAB chairman Philip Chronican, and urged them to loosen credit and encourage house buyers.

The Treasurer also asked, as part of a move to help the economy by reducing regulation, whether the government could make it easier for banks to lend money.

The government is hoping its tax cuts will have an effect in the September quarter, lifting annual economic growth from 1.4 per cent to 1.6 per cent or more, and boost business and consumer confidence.

The bankers, however, echoed Treasury secretary Steven Kennedy’s comments to a Senate estimates committee this week that households would “initially use the tax cuts to pay down debt faster”.

While still refusing demands to bring forward further personal income tax cuts to stimulate the sluggish economy, the Coalition will spend more on drought-stricken communities and is working on more “shovel-ready” projects with the states.

Scott Morrison and Mr Frydenberg — facing calls from business and Labor to immediately stimulate the economy, as well as global threats to trade revenue, historically low productivity and slashed growth forecasts for next year — are seeking ways to boost consumer confidence, retail spending and the housing market.

They are also wrestling with how to deal with record low official interest rates of 0.75 per cent and fears that further cuts will do little to boost the economy.

Documents obtained by The Weekend Australian under Freedom of Information laws show Treasury bureaucrats have delivered advice to the government on launching an unprecedented program of quantitative easing, as the Reserve Bank reaches a point where further reductions in official interest rates have no effect on stimulating the economy.

The Treasury advice suggests the most likely course of action, should it be needed, would be a program of buying residential mortgage-backed bonds.

This would lower bank funding costs and allow borrowers to ­access cheaper credit.

After meeting the bank leaders, the Treasurer told The Weekend Australian that — against the backdrop of the Coalition’s economic plan — “we expect that households will use part of the boost in incomes from the tax cuts to save or pay back debt which will put them in a better financial position and is a good thing for the economy”.

“Now is the time to stay the course and not make knee-jerk decisions as we saw under Labor with overpriced school halls, pink batts and $240bn of accumulated deficits,” Mr Frydenberg said.

He also said that the mid-year economic and fiscal outlook would provide an opportunity for the government to update its economic forecasts “in light of global headwinds and the ongoing impact of the drought”.

MYEFO is delivered just before Christmas and takes into ­account government policies.

The Prime Minister and Mr Frydenberg ran a parliamentary campaign this week to discredit the Rudd government’s spending stimulus during the 2008 global fin­ancial crisis as a series of panic-stricken decisions that were ­excessive and wasteful.

The Australian Bureau of Statistics said on Friday labour productivity — the amount of goods or services produced by workers in a given hour — fell by 0.2 per cent in the previous financial year.

It was the first annual fall for productivity since 2011 and was broad-based, sliding across more than half of the industries that make up the economy.

Dr Kennedy warned this week that labour productivity had fallen markedly in the past five years.

Additional reporting: Michael Roddan