The head of the Reserve Bank has dashed hopes of a further cut in interest rates, pleading for people to "focus on other things other than quarter of a per cent moves in the cash rate".
Appearing before a parliamentary inquiry in Sydney governor Philip Lowe said the Australian economy was set to rebound as the "headwind from falling commodity prices turned into a gentle tailwind".
The headwind from falling mining investment "should blow itself out before too long". Australia was also about get the payoff from large increases in production of liquefied natural gas. There were even "green shoots" of recovery in Western Australia.
The downside risks were much diminished from when he last appeared before the committee in September.
But he was often told that rates should be a bit lower "to try to encourage employment and get inflation up a bit".
"People on my own staff argue this," he told the hearing.
"The counter argument is that lower interest rates would mainly work through encouraging people to borrow more."
"That would probably push up house prices a bit more, because most of the borrowing would be borrowing for housing."
"While that would have some positive effect on the economy, the issue we are dealing with internally is how that would add to fragility."
"Household debt is at record levels. Is it really in the national interest to get a little bit more employment in the short term at the expense of encouraging that fragility?"
Central banks in other countries were given more limited mandates, usually to target inflation, and probably would have cut interest rates further were they in Australia's position. But the Reserve Bank was also charged with ensuring "the general welfare of the Australian people".
It had to consider other things including real estate prices and household debt.
Dr Lowe offered a "personal perspective" on housing affordability, saying he had two teenage children who would soon need places to live.
"I'll be okay because I am paid a lot of money," he said. "But high prices are entrenching inequality. Many people are putting too much of their money into housing. "In the days of higher wage growth it was much easier to pay of home loans. With wage growth now near 2 per cent buyers are forced to bear the burden of high repayments for much longer."
"We certainly don't solve the problem of high house prices by adding to demand. We solve it by increasing supply."
"The things you can do involve transport, zoning and jobs. Most are matters for the states rather than the federal government. The population densities of our biggest cities, Sydney and Melbourne not that high by world standards. We've got to make them denser, but not everyone likes that."
Asked about immigration, Dr Lowe said if the only objective was to reduce pressure on house prices, there would be a case for cutting immigration, but he saw the program as a source of strength.
"I am fond of telling visitors 40 per cent of Australians were either born overseas or have a parent who was born overseas. I wouldn't want to give up that kind of advantage just for property prices."
Asked whether it would help to rein in the so-called negative gearing tax break for investors, he said what was more important was the capital gains tax discount, which made negative gearing attractive.
Although Australia's present exchange rate of 77 US cents to the dollar was not necessarily overvalued, Dr Lowe "would like it to be lower, if I had the choice".
"It would be better if it was lower still, but the dollar is hard to forecast. Economists believe the best forecast is where the rate is at the moment, but we can probably expect it to climb with climbing commodity prices and fall when they fall."
The Fair Work Commission's decision to cut Sunday and public holiday penalty rates would not necessarily make the Reserve Bank's job worse by cutting consumer spending.
"If people have less in their pocket there will be less spending if you look at the individual," Dr Lowe said. "But if you look overall it might allow more people to have more jobs. And when more people have joss they feel like they have more security and are more willing to spend."
While Australia would face increasing tax competition from other countries cutting company tax, it was up to the parliament how it responded.
"Since the global financial crisis other governments have been talking about company tax rates as low as 15 to 20 per cent," he said.
"I think you could argue that from a global perspective that is not useful. But that's not the world that we live in. The choice for the parliament is whether to respond. Are we going to say 'no' because we've got other advantages that mean foreign firms want to move here?"
"Some countries for better or worse have decided to have lower corporate tax rates or less enforcement of the existing legislation as a way of attracting more foreign investment. The issue for us is not so much attracting foreign investment to buy the existing assets, it is foreign investors coming in and creating new assets and new jobs and new growth, and that capital is very mobile."
"Australia has lots of advantages and firms come here for a lot of reasons, clearly a skilled workforce and the political system and property rights, and the wonderful places we have to live, but tax is a consideration, and I think it you are uncompetitive in the tax race you will probably get a few less dollars of capital formation from foreign firms in the country.
"It's a choice for the parliament. It's a decision about foreign investment, because dividend imputation makes a tax cut effectively irrelevant for Australian firms".
It was too early to tell whether the policies of the new US president Donald Trump would boost or harm the world economy, Dr Lowe said.
The biggest risk was that he would erect barriers that wound back international trade.
"We will be the big losers if that deteriorates," Dr Lowe said. "Our ability to sell our minerals, and our services to the rest of the world is critical to our standard of living.
"I suspect in many western societies we have passed the high water mark for public support for open international trading. It's probably rue in Australia."
"The idea that we make ourselves wealthier by erecting barriers, it's crazy."
The story Reserve Bank governor Philip Lowe all but rules out rate cuts, defends corporate tax cuts first appeared on The Sydney Morning Herald.