Its intentions are good, so don't let the RBA be misunderstood
That song was originally written for Nina Simone 49 years ago, but most people know it as a hit for the Animals in 1965. Well, people of a certain age know anyway. And after all that was made of Glenn Stevens' Brisbane speech last week, the governor might well sing along:
Baby, sometimes I'm so carefree
With a joy that's hard to hide/And sometimes it seems that all I have to do is worry/And then you're bound to see my other side./I'm just a soul whose intentions are good./Oh Lord, please don't let me be misunderstood.
Plenty has been said and written about Stevens' "carefree" bit - that little joke about the length of RBA board deliberations - but there also seems to have been some misinterpretation of his "other side" in the same speech, which, overall, could be described as cautiously optimistic: yes, there are challenges, but we're in pretty good shape to face them and we have talents that we're not even aware of yet.
In particular, there have been several claims that Stevens took the opportunity to crack the whip over the budget being in deficit, with a hint of political finger-wagging, which would mean the soul has again been misunderstood.
What Stevens actually said was:
"Notwithstanding the difficulties of achieving a budget surplus in any particular year, which will always be hostage to what happens in the economy and the vagaries of forecasting, there remains a strong commitment to fiscal responsibility in Australia across both sides of politics, even if there are different views about how to achieve it.
"The importance of that commitment will, if anything, be heightened in the future, given that significant challenges exist over the medium term in funding government initiatives that the community appears to want."
Rather than whipping the government over the deficit, a less sensational reading would be that the RBA is quite understanding. A deficit of $18 billion or so this year is no big deal - as long as medium and longer-term commitment holds up.
Our demographics, entitlements and tax regime guarantee big challenges indeed. And neither Labor nor the Coalition has publicly faced up to the political pain that will flow from the necessary reform of entitlements, tax and superannuation. It remains a can waiting a little bit further down the road.
As for the sense of drama generated about the 2012-13 deficit and the $17 billion revenue "black hole" - if the Commonwealth were a listed company, it would not have qualified for continuous disclosure requirements, being less than 5 per cent of total revenue.
Plenty of highly paid CFOs would love their revenue estimates to be out by less than 5 per cent. They, like the RBA, might be more mindful of being hostage to the economy and vagaries of forecasting.
But none of that will stop some folks reading what they want into RBA speeches.
Baby, do you understand me now.
Sometimes I feel a little mad ...
Frequently Asked Questions about this Article…
Stevens' tone was cautiously optimistic: he acknowledged economic challenges but said Australia is in reasonably good shape to face them. He emphasised a continued commitment to fiscal responsibility while warning that outcomes depend on the economy and forecasting uncertainties.
No. Rather than a political finger‑wag, Stevens stressed that both sides of politics show a strong commitment to fiscal responsibility. The speech suggested the RBA is understanding of a near‑term deficit, provided medium and long‑term fiscal discipline remains in place.
The article cites a deficit of about $18 billion for the year and references a $17 billion revenue shortfall. It notes that, relative to total Commonwealth revenue, that shortfall is less than 5% and would not meet continuous disclosure thresholds if the government were a listed company.
The RBA highlighted that achieving a budget surplus in any single year depends heavily on how the economy performs and on the inherent uncertainty in revenue and expense forecasts. Small forecasting swings or economic shifts can materially change budget results.
The piece points to demographics, entitlements, and the current tax regime as guaranteeing significant medium‑term challenges. It also says reform of entitlements, tax and superannuation will be politically difficult and is a can being kicked down the road.
The article advises against overreacting. Much of the drama comes from people reading what they want into speeches; a modest deficit this year isn’t a crisis if there’s ongoing fiscal commitment. Investors should focus on the bigger picture rather than sensational headlines.
No. It states neither major party has publicly faced up to the political pain of necessary reforms and that reform remains something likely to be addressed further down the road rather than immediately.
Recognising the RBA's cautious but constructive tone helps investors avoid knee‑jerk reactions to headlines. The message is to weigh medium‑term fiscal commitment and structural challenges—like demographics and entitlements—rather than fixating on single‑year budget swings.
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