Goldman Sees Fiscal Stimulus Deployed in Australia Budget

(Bloomberg) --

Goldman Sachs Group Inc. says Australians are likely to receive additional cash in the May 2020 budget as the government finally bows to the need for higher spending to support economic growth.

The stimulus will come in the form of tax cuts being brought forward -- financed by high commodity prices that will also have helped return the budget to surplus, Andrew Boak, Goldman’s chief Australia economist, told Bloomberg Television in Sydney Tuesday.

“It won’t be game-changer for the economy from an aggregate stimulus perspective, but it’ll provide a little bit more assistance,” he said in the interview. “When you look across, not just the Commonwealth level, but also the state governments who are doing a lot of the infrastructure spending, we think that fiscal policy settings at the moment are providing a little bit of tailwind to growth.”

The government’s drive to return the books to the black -- its “No. 1 priority,” according to Boak -- against the backdrop of a slowing economy has spurred debate about the best way forward. A recent slide in consumer sentiment suggests the economy might need more than just monetary policy easing to rejuvenate growth.

The Reserve Bank of Australia kept its cash rate unchanged at a record-low 0.75% at Tuesday’s board meeting following three cuts since June.

Read More: Australia’s Frydenberg Says Surplus Goal Won’t Derail Growth

RBA Governor Philip Lowe has all-but ruled out negative rates and said he doesn’t expect to have to implement a bond-buying program, known as quantitative easing. Still, Citigroup Inc. said late last month that they see a case for Aussie QE as soon as February, while Goldman said this month that, if global and domestic conditions fail to improve, the RBA could roll out an open-ended QE program alongside further cuts to 0.25%.

Of his forecast for fiscal stimulus via fast-tracked tax cuts, Boak said: “I don’t think it removes the need for the RBA to cut again over the coming months that’s for sure, and I don’t think it removes the need to have this discussion about unconventional measures, of which quantitative easing is a big part.”

©2019 Bloomberg L.P.

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