CEOs back stimulus over surplus

Matthew CranstonUnited States correspondent

Nov 12, 2019 – 12.01am

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Nearly 60 per cent of chief executives said the federal government should ditch its surplus in order to spend more and stimulate weak economic growth.

The quarterly CEO Confidence Index compiled by The Executive Connection (TEC) reveals that just over half of the 225 chief executives interviewed thought the federal government did not need to remain on a path of budget surpluses and paying down debt.

Only 43 per cent of chief executives said the government should continue on the current path of debt reduction, while 57 per cent thought that more fiscal stimulus was a better approach.

"It is surprising to see this result given most of the CEOs are owner-founders who are more likely to appreciate the need for financial discipline," said Warren Hogan, chief economic advisor for TEC.

"It does show you how much of an issue this has become and how politically sensitive it is," he said.

The federal government has resisted claims that it should break its pledge to deliver a $7 billion surplus next year – the first in 12 years – in order to further stimulate the economy.

Treasurer Josh Frydenberg and Finance Minister Mathias Cormann have both insisted that keeping the surplus is not a vanity exercise and was being maintained for times when the economy was in greater need of it.

"Now is the time to stay the course and not make knee-jerk decisions as we saw under Labor with overpriced school halls, pink batts and $240 billion of accumulated deficits," Mr Frydenberg said on Friday.

Shadow Treasurer Jim Chalmers said: "It is time the Liberals brought forward a budget update to fix their forecasts and properly outline an economic plan that supports the floundering economy."

The Reserve Bank has suggested that both state and federal governments could do more on structural reform and fiscal policy in response to lifting economic growth.

Stimulus preferences

The latest chief executive survey shows that if stimulus was to be used, 70 per cent of respondents wanted it to be in infrastructure, while 44 per cent nominated tax cuts.

Only 14 per cent thought any stimulus deployment should go towards increasing welfare payments such as Newstart.

The government's $7.8 billion in tax cuts deployed this financial year have not driven retail sales up as much as some economists had hoped.

Three interest rate cuts this year have driven the official cash rate to a record low 0.75 per cent. However, some 73 per cent of chief executives in the survey do not believe that further rate cuts will have an impact on the economy.

On Friday, the Reserve Bank said it had weighed the "possibility that further easing could unintentionally convey an overly negative view of the economic outlook”.

Commonwealth Bank chief executive Matt Comyn said on Friday that the recent interest rate cuts had some positive effects but further cuts implied risks.

"Our view overall is each subsequent interest cut, and arguably having them in relatively quick succession, has probably dented some level of both consumer and business confidence," Mr Comyn said.

The survey shows the CEO Confidence Index fell 12 points in the December quarter to 101, staying just above the positive/negative 100 level.

Chief executives of West Australian-based companies are the most optimistic in the country on both economic and business prospects.

"In sharp contrast to the national average, WA leaders are upbeat on the economy’s current performance and are bullish on what the year ahead has in store," Professor Hogan said.

Matthew Cranston is the United States correspondent, based in Washington. He was previously the Economics correspondent and Property editor. Connect with Matthew on Twitter. Email Matthew at mcranston@afr.com