Dear Mr Swan
Congratulations on being the World’s Best Treasurer.
I have a couple of questions for you that I feel need to be answered in light of today’s official interest rate cut by the Reserve Bank of Australia.
1) Why are you so committed to a budget surplus? Obviously you know that according to Keynesian economic thought, Government budgets are one of two arms of economic management, known as Fiscal Policy. (The other arm being Monetary Policy). Budget surpluses are part of a restrictionist economic policy stance and budget deficits are part of expansionist economic policy. Help me understand then, whilst Governments all around the world are spending hundreds of billions of dollars on running huge budget deficits to stimulate their economies, why are you seemingly hell bent on putting the brakes on the Australian economy, by running a budget surplus?
2) In light of Question 1, where you are very committed to a restrictionist economic policy stance, help me understand then, why the Reserve Bank of Australia has today made a substantial move in the direction of loosening Monetary policy by reducing the official cash rate by 50 basis points? To me it seems that Monetary and Fiscal policy stances are opposing each other.
3) I understand we have a two speed economy due to the Resources boom. As interest rates decrease, foreign demand for our currency reduces as investing in Australia is less attractive, which means that the Aussie dollar falls. This means that our resources become cheaper to foreign buyers, which increases demand for these resources which exacerbates the two speed economy problem. Wouldn’t it be better to actually have a tightening of Monetary policy and a stimulatory stance through Government Budget Deficits, in order to stop the widen gaps in the Australian economy?
4) With the Reserve Bank of Australia dropping interest rates by the substantial amount of half a percent, do you think this is a significant statement on the true health of the Australian economy? What is the RBA seeing in the economic future of the country that has caused them to act so decisively? And should we be worried?
5) What is your plan if the big four banks don’t pass on, all or the full interest rate cut. See to me, the decision by the banks to not fully follow the moves of the RBA, actually reduces the effectiveness of this major arm of national economic strategy?
6) Why do the banks not fully pass on interest rate cuts but fully pass on interest rate increases? How can this be interpreted as anything but economic gouging of the domestic market? And why do you as the Government allow this to take place?
I look forward to your reply