“Peter Costello’s argument that Australia cannot afford tax cuts has
been demolished, with the guardian of the nation’s interest rates declaring that
the Treasurer can afford to spend some of the large budget surplus.” This is
David Uren’s interpretation for The Oz, which makes for a good headline: “RBA
gives green light to tax cuts.”

“Yes, we can afford some changes to taxes or some
changes to expenditure. We can afford them. It is simply a matter of what is the
right amount,” Mr Macfarlane said.

Henry’s correspondent Alex Erskine reports on the
grilling of the RBA Governor here, and the suggestion that the Treasurer’s
conservative stance has been “demolished” is of course a great exaggeration.
Macfarlane’s words are carefully hedged.

Henry’s sources say that the Reserve Bank has been
working hard to get the Treasurer to beat the drum about the risk of inflation –
“We are seriously worried,” said Henry’s source. This risk has been around for
some time and is getting progressively greater, and our regular readers will
recall our warnings (*), which until now have been totally ignored. We say
better late than never, but the Treasurer is entitled to feel that mixed
messages are being peddled.

Read the full article at Henry