Economic Update June 2012

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Running Time: 6:36

Date: 01/06/2012

The Federal Government's desperation to announce a budget surplus has led to some distorted political and economic thinking.

The Federal Government's 2012-13 Budget appears to be built on a desperate attempt to contrive a surplus, by putting pressure on the Reserve Bank to further reduce interest rates. Economist Professor Neville Norman of Melbourne University says the surplus won't be achieved anyway, though we won't know for sure until August 2013, just before a likely Federal election. He also points to the poor track record of the Reserve Bank in adjusting interest rates at the right time, and says it would be more effective to set a rate of, say, 4.5 percent and then leave it alone.

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Professor Neville Norman, Melbourne University