Government flipflops on fiscal stimulus

The government has flipped on its stance that the previous tax cuts were sufficient to stimulate that economy, announcing fresh fiscal stimulus in the form of infrastructure spending this week. But at less than 0.1% of GDP over the next two years, that stimulus is nothing more than a drop in the bucket. That leaves the RBA with more work to do. The minutes of the RBA’s November meeting were more dovish than we had expected but we retain our view that the Bank is likely to wait until February before cutting rates to 0.5%.