SYDNEY The man who is set to manage Australia's economy if the government changes pledged on Monday to deliver annual surplus budgets and to look to the central bank to cut interest rates before considering stimulus spending in a future downturn.
In an interview with Reuters, the opposition treasury spokesman Joe Hockey said he remained committed to an independent Reserve bank of Australia, and would not change its mandate to target inflation at between 2 and 3 percent when it considers official interest rate moves.
Australian interest rates are currently at 4.25 percent, well above much of Europe, the United States and Japan, where rates are between zero and 1 percent.
"We have amongst the highest central bank interest rates in the world," Hockey, 46, said, adding rate cuts were an effective way to stimulate the economy due to the number of Australians with mortgages.
"It is the first and best lever," he said.
The level of interest rates is an extremely sensitive political issue in Australia. About one in three Australian householders are buying their home, while another third own their home and one third rent.
The next election in Australia is due in the second half of 2013, and polls show Hockey's Liberal Party would win easily. But the government has a majority of just one seat, and could fall before the next election with a surprise by-election.
Opinion polls point to an easy win for Australia's conservative opposition, which would make Hockey, a former finance industry lawyer and son of a small shop owner, the next Treasurer and put him in charge of the A$1.4 trillion economy ($1.5 trillion).
He has committed to deliver a budget surplus each year in power, despite Australia's relatively low government debt which will peak at around 9.0 percent of GDP, much lower than the debt of countries in Europe and the United States.
Hockey is deeply critical of the Labor government which spent more than A$50 billion in economic stimulus measures to help keep Australia out of recession after the 2008 global financial crisis. The Reserve bank also cut rates from 7.25 percent in August 2008 to 3.0 percent by April 2009.
An OECD report in late 2009 praised Australia's stimulus spending, worth 5.4 percent of GDP, for helping the country avoid recession during the global financial crisis, but Hockey believes the government spent more than needed.
He said tight control of spending would protect Australia from future shocks and avoid building up unnecessary debt.
"The less exposure we have to international capital markets, the more we can rely on our own savings to fund our substantial growth the better it is for Australia," Hockey said.
"It helps to inoculate us from global volatility. I suspect there is going to be capital market volatility for the next 20 years."
NO WEALTH FUND
The Australian Greens have consistently called for Australia to set up a new sovereign wealth fund, to help pay for infrastructure projects. But Hockey rejected the idea.
"A new sovereign wealth fund for Australia is a ridiculously stupid idea for so long as we have taxes that are higher than many of our competitors, when we have net debt of A$140 billion, and for so long as we have a free and open economy," he said.
He has also ruled out any change in mandate for the government-owned Future Fund, which has A$73 billion under management and which pays for the government's public service pension liabilities, adding it should run on commercial lines.
Hockey, however, said he would like to look at longer-term government bonds, out to 30 years, to help bring in foreign capital to help with infrastructure spending.
"It is important to have benchmark government bonds, and I would push the benchmark bonds - I'd like to see 30 years out there - longer dated bonds, to create a benchmark for in particular infrastructure investment," Hockey said.
Australia's government bonds now run for 15 years, with strong international interest in the triple-A rated debt, and with more than 75 percent held by offshore investors.
(Editing by Ed Davies)