It is inconceivable that they would choose now to pay down debt when they could borrow money at such low rates and really kick start the economy through government spending on productivity enhancing investments.

It’s not only the surplus fetish that is a problem as former head of the RBA, Bernie Fraser, points out. The government’s self-imposed cap on tax-to-GDP would also act as a restraint on the economy.

“What this dopey cap does is that it acts as a cap, not just on tax but also on expenditure, so if you have to do something you’ve created a problem for yourself,” he said.

With borrowing costs so low, an exchange rate at the bottom end of its range in recent times, surging iron ore prices boosting our terms of trade, and a nominally low level of unemployment, things should be going a lot better than they are.

But the reality is that social security payments are too low and many people are living in poverty, wages have stagnated, underemployment is rising and job security is falling.

Yet all this government can talk about is tax cuts for the wealthy and delivering a surplus.

via The RBA must be tearing their hair out – » The Australian Independent Media Network