The RBA has flagged the budget as one of several factors dragging on economic growth. Source: AAP
IN the minutes of its latest meeting, the RBA warned that "fiscal consolidation" could drag on growth.
And so it could.
The RBA reckons economic growth picked up to be about in line with the long-run average in the March quarter.
But slower growth lies ahead "given expected slower growth in exports, the decline in mining investment and the planned fiscal consolidation," the RBA said in the minutes.
The fiscal consolidation - in other words, efforts to reduce the budget deficit - is a theme that's been running ever since the budget was allowed to head into deficit to stave off the worst effects of the global crisis of 2008.
Last financial year, the 12 months ending June 2013, public sector spending fell by 1.3 per cent after allowing for inflation.
In the national accounts, where this figure comes from, public sector spending - or final demand as its more properly known - includes the spending the public sector does on its own behalf.
That includes investment in buildings and equipment, along with spending on inputs used in the delivery of the goods and services the public sector provides.
Those inputs include the labour used in staffing government offices and other workplaces.
But it doesn't include the money passed on to other sectors, like pensions, other welfare payments or subsidies to businesses, which are part of the income of the households and businesses receiving them.
That fall in public demand, unprecedented in the 54-year history of the national accounts, had a lot to do with Australia's disappointing economic growth and employment outcomes since then.
This year, ending next month, public sector demand will rise by 1.75 per cent, before slowing to a growth rate of 1.5 per cent in 2014/15, according to last week's federal budget.
Two year of growth is a turnaround from the fall in 2012/13, but the growth is still relatively slow.
With economic growth of over three per cent needed to reduce the unemployment rate, that means the private sector will have to post growth rates well above "trend" to make up for the public sector.
And that's very unlikely.
Another way of looking at fiscal policy is through the budget balance.
The deficit is projected to fall from 3.1 per cent of GDP in 2013/14 to 1.8 per cent in 2104/15.
The difference - 1.3 per cent of GDP - represents a big block of spending power being taken out of the economy by the government and not put back.
As the RBA said in the minutes, it's not just this fiscal consolidation dragging on growth, but exports are heading for a flat spot and mining investment is on the skids.
And the boost from the lower Aussie dollar is fading as the exchange rate recovers.
No wonder the RBA is signalling a long while before the end of historically low interest rates.
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