Not unusually for this government, its rhetoric about the intergenerational report is all over the place. But there was an unusual reason for it.

First, Treasurer Joe Hockey switched from warning that voters would be so shocked they’d “fall off their chairs” a fortnight ago to saying the report wasn’t about scaring people — indeed, he was sounding positively upbeat yesterday. Then he shifted in his rhetoric about Labor. In his media release for the report, Hockey attacked Labor, pointing out “the Report shows that if we made no changes to policies left in place by the former government the deficit was on a path to reach $533 billion in today’s dollars, and net debt would have been almost $5.6 trillion by 2055”.

This was the line Tony Abbott initially took too, in question time. Viz, “the intergenerational report shows … that the structural reforms already proposed by this government, and passed by this parliament, have halved the deficit that was left to us by the former government … They have halved debt that was heading for 120% of GDP under the policies of the former government … the debt and deficit problem that was out of control under the former government …”

But then the Prime Minister, having just used the report to attack Labor, declared a hope that the opposition “lift themselves from the spirit of partisanship … and try to look fairly and squarely at the issues facing our country”. To another question, Abbott both attacked Labor in the answer and said “we can make serious efforts to address our nation’s problems, and we will address them better if we can do it in a bipartisan spirit”.

Maybe Abbott’s idea of bipartisanship includes him getting to attack Labor while Labor is not allowed to attack him.

But the Treasurer changed his tune as well. At his media conference for the report, he studiously avoided attacking Labor. In question time, he devoted an entire answer to talking about lifespans a century ago, changing work and study patterns and productivity, concluding “over the days, weeks and months ahead, every single member of the government, and I really hope every single member of the opposition and everyone involved in the community, is going to engage in the conversation about how we can have a more prosperous future”. That was echoing his statements inside the lock-up about his hope for a genuine debate (he even came over and spoke to Crikey, which, given how much we’ve condemned Hockey lately, showed a definite generosity of spirit).

The fall-off-your-chairs Hockey who was going to use the IGR as a tool to frighten voters and bludgeon Labor had been replaced with Long-Term Joe, eager for a reasonable debate about fiscal strategy, while his Prime Minister was torn between attacking Labor and calling for bipartisanship.

But while Hockey was unveiling the IGR, Reserve Bank deputy governor Phil Lowe was giving a speech of much more immediate import for voters. Lowe forensically analysed why a very loose monetary policy appears to be having less stimulatory effect than it otherwise should not merely in Australia but across the world. The speech is worth reading for that discussion alone, but his conclusion — echoing what governor Glenn Stevens told the House of Representatives Economics Committee in February — was most salient. Said Lowe:

“The board is also very conscious of the possibility that monetary policy’s power to summon up additional growth in demand could, at these levels of interest rates, be less than it was in the past. A decade ago, when there was, it seems, an underlying latent desire among households to borrow and spend, it was perhaps easier for a reduction in interest rates to spark additional demand in the economy. Today, such a channel may be less effective.”

He finished the speech with:

“… the solution to the problems caused by the disconnect between the desire to save and the desire to invest cannot lie with monetary policy. Instead, it lies in measures to improve the investment environment so that once again there is strong productive demand for the use of our societies’ savings.”

That is, don’t look to low interest rates alone to restore trend growth in Australia, despite the looming follow-up rate cut to the surprise reduction in February.

If we can’t look to monetary policy to have its usual stimulatory effect, what about fiscal policy? Funny thing is, there’s a parallel problem to what Lowe described with interest rates when it comes to the budget. Hockey is running a highly stimulatory fiscal policy via his deficit spending: he’s pumping $40 billion into the economy in 2014-15, according to the Mid-Year Economic and Financial Outlook, and is currently planning to pump $30 billion in next year — though expect that to rise in the May budget. Don’t forget he substantially lifted the deficit for 2013-14 when the government was elected, from $30 billion to nearly $50 billion. In one year, Hockey has added $86 billion to the deficits to the period 2013-17 from what Treasury and Finance said he’d inherited from Labor. Yet the economy has still slipped to growth of around 2%, and heading lower this year, with unemployment rising to a series of new 12-year highs (since the first IGR of Peter Costello, and ahead of us is the “investment cliff” the RBA is still concerned as the resources investment boom collapses, unsupported by replacement spending from other businesses in the economy).

How can Hockey be pumping 2.5% of GDP into the economy with record-low interest rates, a 70-80 US cent Aussie dollar and low petrol prices and the economy still be flatlining? One of the reasons is because while Hockey has been acting like a big spender, he’s been talking like a miser. His incessant debt’n’deficits rhetoric, the focus on the budget’s punitive measures and the government’s incompetence last year helped to neuter the impact of his extra spending by hammering consumer and business sentiment. Unlike Kevin Rudd and Wayne Swan in 2009, who handed money to voters and said, “it’s an emergency, spend up big”, Hockey has pumped money into the economy while telling voters “we’re in a crisis, we’ll all be rooned”. Voters promptly shut their wallets.

Maybe Hockey’s belated shift in rhetoric on the IGR was accompanied by the dawning of the realisation that if he continues to tell voters how dire things are, he’ll simply doom himself to an endless replay of the last three quarters of growth despite his deficit spending. If so, that’s a good thing, and more useful than the report he unveiled to such fanfare yesterday. The next step is to accept the Reserve Bank’s underlying message and use the forthcoming budget to direct spending to help business invest and give consumers the confidence to spend.