Expect a big rate cut – and more spending – but no more tax cuts

Interest rates will be cut this week – and the Federal government will announce extra spending – to boost Australia’s flagging economy.

But there will be no new tax cuts.

Both the Prime Minister Kevin Rudd and his Treasurer Wayne Swan again ruled out  that idea  over the weekend, saying tax cuts take too long to work.

The immediate outlook is bleak.  The International Monetary Fund predicted at the weekend that the Australian economy would contract by 0.2 per cent this year.

While that suggests a relatively shallow recession, by world standards,  it would still not be a bad result. And  thousands of Australians would lose their jobs, if it  proves to be right.

As Mr Swan noted, in an interview yesterday, the world now faces “a marked contraction in global demand, the likes of which (neither) the country or the globe has seen since the Great Depression.”

But the grim outlook, that Australia now faces, is presenting the opposition, as well as the government, with big political challenges.

The public, undoubtedly, expects all of Australia’s  politicians to the opposition to do what they can, to fight the global recession.  Even though that might not be much.

But Malcolm Turnbull’s talk of the Rudd Government “channeling  the Whitlam government” with big reckless spending and big deficits was not positive.

Mr Turnbull sounded more like the merchant banker, he once was, than a leader who knows that his help is needed, too, at this critical time.

The Reserve Bank board meets tomorrow, to review Australia’s interest rates.

With the overnight cash rate still at 4.25 per cent, it has plenty of room to announce a big rate cut.

A cut of 100 basis points is quite likely.

The board will make its decision just one day after the Australian Bureau of Statistics releases its latest house price figures, for the nation’s capitals.

These will not show a US style collapse in Australia’s housing markets.

However, they will, quite certainly, show some significant easing.

And that will disturb the nation’s home owners.

So they are quite likely  to curb their spending at the worst possible time.