It's a genuine fear within the Treasury, if not the Reserve Bank
TREASURY boss Ken Henry has called for an end to "premature" celebrations about surviving the global crisis, warning that a "second shockwave" could be around the corner.
In a public address that distanced Treasury from the optimistic stance adopted by the Reserve Bank Dr Henry told an industry forum in Canberra pundits should be careful "not to prematurely declare that the war is over".
"The Australian economy does look, certainly relative to the rest of the world, very resilient," he said.
"But the rest of the world is not out of the woods yet. It is possible that there will be a second shockwave. I have no reason to believe it will be anything like the first shockwave, but there could be a second shockwave"...
"That would have implications for future growth," he told the Australian Industry Group, "So I think we should be a little cautious about rushing to declare victory just yet."
Reserve Bank Governor Glenn Stevens Friday told parliamentarians the present downturn would probably be one of Australia's "shallower ones" and that unemployment would be unlikely to reach the 8.5 per cent budget forecast, adding that interest rates should soon move towards "more normal" levels.
Dr Henry who sits with Governor Stevens on the Reserve Bank board was more cautious saying that while "there are grounds for optimism, there's no doubt," he was "not rushing to judgment."
"I think it is fair to say that nobody fully understands the reasons for the somewhat better economic performance. We will update our forecasts later in the year and take stock, but we are spending this present period analysing in some depth the reasons."
Dr Henry spoke as Japan joined Germany and France in emerging from recession, returning to positive growth for the first time in more than a year.
However Japanese economists warned that its return to growth of 0.9 per cent in the June quarter might be short-lived, pointing out that spending was weak, wages were falling and layoffs in firms such as Toyota and Sony had pushed Japan's unemployment rate up towards Australia's at 5.4 per cent.
The Treasury head was optimistic about Australia's prospects once global growth returned, describing China and India as "only in the early stages of catching up with the developed world living standards", and saying the process "could have a very long way to run".
Australia would benefit more than most from the next phase of global growth, being "seen as possessing the best of the qualities - of governance and flexibility - of the developed world while also offering an abundance of real investment opportunities usually found only in the developing world."
In the meantime the government's $21 billion cash splashes and other stimulus measures had preserved an estimated 210,000 jobs. Returning government spending to normal would be "challenging, necessary".
Dr Henry built up expectations for the Henry Tax Review due to report in December, describing it as a "once in a generation opportunity."
While appearing to rule out recommending applying capital gains tax to the family home he said some of the recommendations he was considering were so ambitious they relied on technologies that were "embryonic or did not yet exist". They might take at least a decade to implement.
Published in today's SMH and Age