Abbott must wrestle policy power back from the RBA

The Prime Minister has copped a lot of flak of late. Much of it deserved – but some of it less so. In particular, the view that the Abbott Government has somehow failed to buttress the economy against the end of the mining boom isn't quite right.

That's not to say that decision-makers have strengthened the nation, but the truth is, any failure cannot be solely attributed to this government. This government is merely shadowing the same failed economic strategy as the previous one. If they can be faulted for anything, it's for not changing tack, a position that makes the litany of criticism from leftist economists quite ironic. Team Abbott's failure is their failure – and the failure of their political masters.

Recent state elections hold out at least some hope for change in that they appear to have sparked a degree of soul searching among the political class. The idea (widely held in political and policy circles) that citizens are stupid sheep, easily placated by the new-told lie, is in tatters. Instead, the electorate has shown that it won't tolerate spin, broken promises, or a government that is directed by and for, narrow sectoral interests.

Abbott should capitalise on these developments to push through an aggressive program of reform -- use them as a spring board for action. The biggest mistake political strategists could make now is to assume that recent election results stem from a distaste among the electorate for reform or ‘tough decisions'. This is gravely misguided. Australians have a long history of doing what is necessary -- if it is necessary. What they won't tolerate is hypocrisy, corruption or blind ideology dressed up as reform.

Against that backdrop, the Prime Minister's focus on the economy before the National Press Club on Monday was timely. The nation finds itself at a crossroads and Abbott's rhetoric was appealing. The problem is that actions to date have not reflected that rhetoric. Following in the footsteps of the previous government, citizens are offered only words and excuses for failure. Six years on, the government still runs a budget deficit with no actionable plan in place to reduce it. Indeed the Treasurer is on record as stating that the economy is too fragile for reasonable fiscal restraint.

In a similar vein, this government continues to rely excessively on monetary policy and an exchange rate target to boost growth and government revenues. That this strategy has failed for years is seemingly of no consequence. Instead, and despite the lowest interest rates in a generation -- the economic fraternity, backed by the Treasurer Joe Hockey -- clamour for even more rate cuts to fend off whatever latest disaster threatens. Apparently it's the recession again -- the seventh in as many years.

What is lost on Hockey, the RBA and much (though not all) of the economic community, is that further rate cuts from this point are a loud admission of failure. They testify to the failure of previous rate cuts to boost the economy.

Monetary policy is on a road to nowhere, policymakers apparently in a blind panic -- desperately hoping that something, anything positive, will happen. It is that panic that permeates through the economy and weighs on business and consumer confidence -- each and every time the RBA cuts rates.

Noting this, and if the Prime Minister is sincere in his view, then Abbott must change this tack immediately. If he and the rest of cabinet want to quick-start the process of reform and boost Australia's prospects, then they must put the kybosh on any further monetary easing.

That's especially the case when the currency is already down at US77c, when a huge stimulus is coming through on crude and given the rebound in housing. Not to mention the general lift in economic activity, including the recent surge in jobs growth.

Not for the first time, no credible case has been made to cut rates. Importantly, the economy is not weak on any major metric. Trend growth is not weak growth. Strong jobs growth is not weak growth. The best anyone can do is point to the actions of other central banks. And yet, it seems, if we can trust the leaks of senior RBA officials, a rate cut at some point is guaranteed.

The Herald Sun's Terry McCrann argued that the RBA should act before they see the whites of the economy's eyes. It's a safe assumption that this is a position held by senior RBA officials as well given the widespread view that he receives privileged briefings from the bureaucracy. The Prime Minister needs to note the obvious problem: that we are six years into the RBA pre-emptively acting before it sees the ‘whites of the economy's eyes' -- and it has gotten us nowhere. The fact that the RBA feels the need to cut again should be proof enough that this is a failed strategy.

Abbott must end this farce and take policy out of the hands of underperforming bureaucrats whose only solutions entail repeatedly doing things which clearly haven't worked. It's either that, or an ensuing slump in national confidence as the RBA continues to panic everyone. Eventually that will come back to bite the government -- maybe not directly, but certainly indirectly. Either way, it's not going to help his standing with the electorate -- and it is a path the government more generally, simply cannot afford to take.