The run of Australian economic data provides no
strong or obvious reason for policy changes. Indeed, the latest slowing of
monetary and financial asset growth gives some comfort about the general
soft-landing hypothesis that the monetary authorities have been assuming and
hoping for.

… in driving global productivity growth so hard,
the new vigilantes are exercising market discipline far more certainly than the
old financial market vigilantes. This is why we asked our question about the
death of monetary policy. Of course, if any individual central bank (or
government for that matter) tried to buck the disciplines of the new vigilantes,
the price would be high.

We hope the Reserve Bank of Australia, and the Australian government,
understands this point with total clarity. Only time will tell. But note one
particular point. The new global vigilantes are effectively demanding lower
rates of income tax. It is no accident that real reform of Australia’s income
tax is now on the political agenda, and indeed is becoming bipartisan.

Read more here.