Having worked as an economist for several decades, Bill Evans has seen his fair share of federal budgets.
But none, not even the budgets during the last recession in the early 1990s, which Evans recalls “went on and on”, have as much anticipation surrounding them as this year’s set of numbers and policies due on October 6 amid the COVID-19 pandemic.
Ahead of the budget, Evans this week predicted the Reserve Bank would also cut rates to just 10 basis points on budget day in a fresh “team Australia” moment, adding extra suspense and drama to the first Tuesday in October.
“It's a very seductive concept,” Evans, Westpac’s long-time chief economist, tells Westpac Wire in a podcast previewing the budget.
“I think what they've decided is that…in order to be a credible supporter of fiscal stimulus, they need to be seen to be doing as much as they possibly can do.”
In the podcast, Mr Evans also discusses what he expects in the budget, the benefits of personal income tax cuts, the superannuation guarantee, the outlook for house prices and risks surrounding higher debt levels.
“Governments around the world are going to be accumulating a lot of debt. But the cost of that debt is extraordinarily low, so governments can manage the interest burden of that debt very easily,” he says.
“However, having said that, the biggest worry, and that's the worry with MMT as well, is that inflation might be out there somewhere. And once inflation starts to rear its ugly head and central banks that think they know how to deal with inflation by raising interest rates get moving, then that's when the cost of managing the debt becomes a big issue.
“I can't say what that shock might be, but of course sitting back here a year ago, no one unpredicted COVID either.”
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