What everyone seems to be forgetting in the post-Budget furor is that it is the Reserve Bank who exerts the greatest control over the state of our economy, not the incumbent Federal Government.

This year Joe hockey has set the, somewhat modest, goal of taking $1 billion off our national spending. I say modest because Australia’s gross spending is predicted to be around $400 billion. So that’s a reduction in spending of 0.25%.

TAH_RBA_LW_240911_20120206202611112793-420x0By the end of the government’s three year term the budget cuts are expected to reduce spending by $8 billion a year. At this time spending is predicted to be around $450 billion. That’s a spending reduction of 1.7%. Hardly the ‘slash and burn’ the opposition is predicting.

Rate changes by the RBA will have a much more immediate and pertinent effect. Reducing the 2.5% interest rate in August (as is widely predicted) will boost borrowing and speed up the economy far more than any cuts to services will slow it down.

Of far more consequence will be the actions (economic, political and cultural) of the U.S. and China. Should the U.S. stabilise its debt they will regain their credit rating and begin to spend again. This is good news for partner countries like Australia. Should the Chinese economy remain strong it will buoy the Australian economy along with it.

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