No need for panic, but the government may need another economic plan

The economy is tanking. The Reserve Bank is slicing rates to a level not even considered during the Great Depression. And Donald Trump is playing tariff roulette with China.

But none of this is going to have the freshly re-elected federal government panicking. Yet.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg cannot show any sign of panic.Credit:Dominic Lorrimer

The national accounts released on Wednesday were, by any measure, poor. A 0.4 per cent lift in the March quarter, half of which was statistical noise, took annual growth to its lowest level since the GFC.

Yet Scott Morrison and Treasurer Josh Frydenberg cannot show any sign of panic given just three weeks ago they were telling voters the economy's fundamentals were sound under their watch.

The government's plan, at this stage, is relatively straight forward.

Hope households use their engorged tax refund cheques and the cut in interest rates to spend up, pumping money into the economy.

Stick with the budget's infrastructure plan to underpin jobs growth while waiting for miners to start using some of their huge windfall gains on new projects while hoping the property market stabilises to lure investors back into the construction game.

All the while, and despite the complaints about the pressures being placed on our major cities, keep the population tap running at around 400,000 new permanent Aussies a year.

There are issues with each part of this cunning plan.

The first goes to the interest rate cuts. While RBA governor Philip Lowe and the government want us to reduce our mortgage repayments, most Australians will use the cuts to pay down their 30-year mortgages faster.

While there's plenty of talk about the stimulatory nature of the tax refunds that will start flowing next month, ultimately the payoff is about $1080 and only to those who are working and earning between $50,000 and $90,000.

It's nothing like the stimulus payments made during the global financial crisis which included $1400 payments to single pensioners and $1000 per child for those receiving Family Tax Benefit A.

As a community, we are far more indebted than we were just a couple of years ago, crimping our spending intentions.

The grand infrastructure plan equates to about $10 billion a year in a $1.9 trillion a year economy. It will maintain growth but unless the government finds a few more train lines or airports to build, it doesn't add to growth.

And then there's the elephant in the room. Donald Trump and his trade war with China (and just about any other nation that fails to bend to his wishes) is directly responsible for the downgrade in global economic forecasts that have occurred over recent weeks.

The World Bank on Wednesday was the latest institution to mark down expectations with the Trump tariff tantrum the main culprit.

Analysts are predicting the US Federal Reserve is going to have to cut interest rates there to offset the Trump administration's policy follies.

All of which means the government might need another plan – and soon.

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