In an exclusive, high-powered and rare interview for the Institute of Public Affairs, former Governor of the Reserve Bank of Australia Dr Philip Lowe reveals his real thoughts about the economy, current government policy, and what needs to be done to get living standards growing again.
Interviewed by one of Australia’s leading public intellectuals and Chief Economist at the IPA, Adam Creighton, Dr Lowe declared “Now we find ourselves running sizable budget deficits at a time where we’re at full employment and commodity prices are very high. We should be running sizable surpluses.”
Dr Lowe pulled no punches in his damning assessment of government policy, stating that “Government spending has been adding to demand progressively over time, and that’s putting upward pressure on inflation.”
Dr Lowe’s interview is the inaugural instalment of The Prosperity Question podcast series, hosted by Mr Creighton, as a part of the IPA’s cornerstone economics research program Economic Prosperity Initiative.
The mission of The Prosperity Question is to probe Australia’s leading economic minds to better understand the source of Australia’s economic stagnation, and, more importantly, to elicit guidance on how our nation can once again become the envy of the world.
Dr Lowe also stated that “public policy is no longer focused on expanding the size of the pie. It’s more about the distribution of income and wealth.”
Dr Lowe served at the Reserve Bank of Australia for 43 years including the last seven as Governor, and rarely gives wide-ranging public interviews of this nature.
Commenting on the podcast and the Economic Prosperity Initiative, Adam Creighton said:
“Dr Lowe’s astute assessment of Australia’s current economic malaise should be considered by our political leaders, and those who are at the commanding heights of public policy including in the bureaucracy,” said Mr Creighton.
“The IPA’s Economic Prosperity Initiative has been launched to inject further scrutiny over economic policymaking in Australia at the federal and state level, and to highlight the key areas of Australia’s economic challenges across public debt, declining investment, collapsing productivity, and, ultimately, reduced living standards,” said Mr Creighton.
Dr Lowe offered a number of important perspectives on how to improve Australia’s economy, including the following:
- Introducing strong fiscal frameworks, for example through a budget balance over the cycle, and strong cost-benefit analysis to guide public investment decisions.
- Reducing the regulatory burden on the economy, with Dr Lowe stating that “we’ve done too much regulation.”
- Getting energy prices down, as Dr Lowe stated “We used to have cheap and reliable energy. That was a source of comparative advantage. Our energy is no longer cheap. Sometimes it’s not even reliable.”
- Government economic policy should focus on growing the economy, rather than just redistribution.
- Reducing the reliance of our tax system on income taxes.
Dr Lowe also reflected on the RBA’s dealings with the government during the post-pandemic interest rate rises. “The relationship with the current government has been more strained,” he said, adding that it “wasn’t as strong as it had been in the past”.
On tax reform, Dr Lowe said Australia taxes “income and wealth generation too highly and consumption too lightly”. He advocated lower top marginal income tax rates and a higher GST to help lift investment and productivity.
On housing, Dr Lowe said dwelling construction had failed to keep pace with population growth. Of the government’s housing targets, he said: “They’ve fallen woefully short of those targets and no prospect in my view of meeting them, and that’s the fundamental problem.”
On immigration, Dr Lowe said Australia should make itself a better place to invest and expand its capital stock. If investment remains weak, “we have to accept lower rates of population and that will have to come through lower immigration. I think we’ll end up being poorer as a result of that, but that’s the choice we face.”
Dr Lowe holds a PhD in economics from the Massachusetts Institute of Technology and served as Deputy Governor of the RBA from 2012 to 2016 before becoming Governor.
You can watch Adam Creighton’s interview with Dr Philip Lowe here.
