OECD: Australia has capacity for fiscal stimulus

Australia must consider fiscal stimulus should economic growth slow more than expected when the nations central bank begins its next tightening cycle, the Organisation for Economic Cooperation and Development (OECD) said on Tuesday.

The OECD affirmed a projected uptick in economic growth to three percent by 2018 despite a small ease to 2.6 percent in 2017 as the nation's economy transitions away from mining-led growth via a targeted reform agenda.

"We welcome the OECD's acknowledgement of key components of the government's national plan for economic growth that will support jobs, wages and services," a spokesperson for Australian Treasurer Scott Morrison told Xinhua on Tuesday.

Thus, it's expected the Reserve Bank of Australia (RBA) will begin a tightening cycle in late 2017 given the monetary-policy developments elsewhere, the cyclical development of the local economy and the need to unwind tensions from the heated housing market. The OECD, like Australia, expects a fiscal consolidation of 0.5 percent as a result.

"(But) in the event of disappointing growth, however, fiscal rather than monetary support should play the leading role given the housing market concerns and fiscal leeway," the OECD Economic Outlook report said, adding the net gain from monetary easing has narrowed anyway.

But Australia is unlikely to pull the fiscal lever outside of what has already been appropriated in the national budget as it continues its quest to protect its coveted Triple-A credit rating.

Global ratings agency Standard & Poor's in July placed Australia's sovereign debt on a negative watch with the eye to assess the government's ability to pass revenue and expenditure measures through both houses of parliament following last election.

Agencies have been concerned of the continued deterioration in fiscal metrics and prolonging a return to budget surplus, however, the ruling government does not hold power in the Senate, making it difficult for much-needed fiscal reforms to become law.

The OECD argues Australia has the capacity for "fiscal loosening" to respond to any unanticipated downturn in economic activity given the debt to GDP ratio is currently 45 percent and is projected to begin falling after having risen off a low base.

"There is room for spending increases, notably an acceleration in public investment programs underway in telecommunications, roads and public transport systems," the OECD said.

"Returns would be high for accelerated infrastructure development and investing in skills, an area where Australia falls short of top-performing countries." Endit