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' speech was described as cautiously optimistic. He made a light-hearted 'carefree' joke about RBA deliberations, but also stressed that while there are challenges ahead the economy is in reasonably good shape and Australia has talents to meet them. He emphasised a continued commitment to fiscal responsibility across both sides of politics, even if there are different views on how to achieve it.
No. The article argues the RBA was not 'whipping' the government over the deficit. Rather, Stevens acknowledged the difficulties of hitting a surplus in any particular year and expressed understanding, while emphasising the importance of a medium- and longer-term commitment to fiscal responsibility.
According to the article, an $18 billion deficit this year is not a major concern by itself — provided the government maintains medium- and longer-term fiscal commitment. The RBA's view was that small short-term deficits are manageable as long as overall fiscal discipline remains in place.
He means budget outcomes and revenue forecasts can swing with economic conditions and forecasting uncertainty. In plain terms for investors: fiscal numbers can change because the economy changes, so forecasts are inherently uncertain and should be interpreted with that in mind.
The article highlights demographics, entitlement spending, the tax regime and superannuation as significant medium- and long-term challenges. Stevens suggested reforms to these areas will be politically difficult but necessary to sustainably fund government initiatives.
The article advises not to overread rhetorical or joking lines and to take the broader context: the RBA was cautiously optimistic and focused on fiscal responsibility. Investors should look for the underlying policy message (e.g., emphasis on fiscal sustainability) rather than sensational headlines.
The piece says there was a lot of drama, but in proportional terms the $17 billion revenue shortfall would be less than 5% of total Commonwealth revenue. The article suggests that if the Commonwealth were a listed company that size of variance would not trigger continuous disclosure, implying the media focus was outsized.
Yes. Stevens explicitly said there remains a strong commitment to fiscal responsibility in Australia across both sides of politics, even if they disagree on the best ways to achieve it. The RBA views that commitment as important and likely to grow given future funding challenges.
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